Robert Shiller: Stock Prices, “Still High By Historic Standards”

Following last week's dismal showing, stocks were heading higher early Wednesday, seeking a third fourth-straight gain.

In such a highly volatile, uncertain market, many investors are feeling whipsawed by the dramatic swings. "Where do you get a grip on what reality is?," asks Yale Professor Robert Shiller.

The answer, as you might have already guessed, is the cyclically-adjusted P/E model Shiller co-created. By this measure, which values stocks based on the past 10 years of earnings — in order to smooth out cyclicality — the stock market is "still high by historic standards," at a cyclically-adjusted P/E around 20, Shiller says. "I'm kind of surprised stocks are expensive as they are given the economic turmoil we're going through."

That said, Shiller believes equity returns will be low single-digits over the coming decade -- "not bad" especially relative to Treasuries and TIPS. But it's a "very risky, very uncertain return," he adds, citing the "precarious economic situation."

In the accompanying video, Shiller discusses his view on equity valuations and responds to recent comments from Wharton Professor Jeremy Siegel, who discussed the flaws in the Shiller P/E model here last month. (See: Jeremy Siegel: Stocks Are Cheap! And Getting Cheaper)

Stocks looks "alright…but I'm not Jeremy Siegel in my enthusiasm," Shiller says.