In a recent WealthTrack interview, Nobel Laureate Robert Shiller discussed the narratives that are driving the markets and offered advice to investors on the best way to stay in the stock market.

Here are some highlights from the interview:

• “What’s driving it has been a mystery,” says Shiller regarding the stock market’s upward climb since its March 23^rd low. “It certainly has something to do with changing narratives,” he notes, adding, “but we haven’t been able to measure them.”
• He suggests that a lot of the market’s upward motion may have to do with an old narrative around regrets suffered from missing out on opportunity during the financial crisis of 2007-2009, when “a lot of people got scared and pulled their money out. It was a horrible time to pull your money out.”
• When the coronavirus pandemic emerged, Shiller notes, it triggered talk and reflection on past epidemics, including the one that occurred in 1918. “There was no obvious effect on the stock market,” he says, suggesting that this may have fueled the market’s upward trajectory.
• “The pandemic surge in the U.S. stock market mostly had to do with the boom in the information technology and communication services sectors,” Shiller says, adding that the U.S. market—which has the highest proportion of those stocks of any country across the globe—is the “most overpriced in the world.”
• The Cyclically Adjusted Price Earnings (CAPE) ratio of the U.S. stock market is now at 30, Shiller reported, noting that the only time it has been higher was right before the 1929 crash and the 2000 dot-com bubble. But investors have few alternatives given lofty long-term bond prices (and low yields), which may also be fueling the real estate market boom.
• Shiller advises investors to stay in the stock market with a focus on diversifying across nations as well as asset classes. Tech and growth stocks, he says, have done well but investors should not let that “go to your head” as they are also very highly priced.
• The pandemic “has created a new culture” of working from home, Shiller points out, noting that the shifts companies have implemented may stick. “We never saw children running around the office,” he quipped, “and now we see them all the time” on virtual meetings. “It may be a better world,” Shiller says, requiring workers to spend less on clothes and commuting and having more flexibility regarding where they can live. “It may make the economy much more efficient.”