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US stocks could go 'a lot higher' before dropping, says Nobel laureate Shiller

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Near-record US stocks still have scope to zoom to new highs, according to Robert Shiller, the Nobel laureate who's famed for his analysis of asset-price bubbles and who last year warned that the market was over-priced.

[SYDNEY] Near-record US stocks still have scope to zoom to new highs, according to Robert Shiller, the Nobel laureate who's famed for his analysis of asset-price bubbles and who last year warned that the market was over-priced.

"The stock market could get a lot higher before it comes down," Prof Shiller said in an interview with Bloomberg Television Thursday. "It's highly priced, but it could get much more highly priced. It's a risky market now."

The comments are a contrast with increasing focus on gauging when the next bear market kicks in. Strategists at banks including Goldman Sachs Group Inc and JPMorgan Chase & Co have recently highlighted the dangers of an impact from the US-China trade war.

Prof Shiller's focus instead is on US President Donald Trump's support for corporate America, which he says is driving sentiment and market strength. The S&P 500 Index has climbed almost 9 per cent this year, with the total return to investors running at an annual rate of more than 14 per cent. It closed on Thursday less than 0.5 per cent from its August record high.

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"It has something to do with our president, who is an exceptionally business-oriented president and who wants to deregulate and favours lower taxes," he said. "That has an effect on the market but it goes beyond the rational, logical effect - it has something to do with our animal spirits. The US is just doing great right now in terms of the strength of the economy and the stock market. That seems to be built around the Trump story at this point in history."

Valuations may be among the most extreme in long-term history, but Prof Shiller highlighted that they're still well below the heady days of the technology boom at the turn of the century. The cyclically adjusted price-to-earnings ratio, which Prof Shiller popularised to smooth out the effect of earnings over the longer run, currently sits at 33 times earnings. It reached as high as 44 in 2000, just before the dot-com crash.

Early last year, Prof Shiller had said that he had refrained from adding to his own US stock positions and was emphasising overseas markets instead. He did, though, note the temptation to jump in based on Mr Trump's proposals - or the expectation of other investors to believe in his programme.

BLOOMBERG