Rethinking the CAPE ratio after freakish Big Tech earnings: Nir Kaissar

The CAPE ratio, once a reliable indicator of stock market returns, has become less effective due to the unprecedented earnings growth of major tech companies like Apple and Alphabet. This growth skews the traditional cyclically adjusted price-earnings ratio, often leading investors astray. A proposed solution involves a "balanced P/E" ratio, incorporating both historical and forecast earnings to provide more accurate market signals. This approach could offer a better hedge against prolonged earnings booms and more accurately reflect current financial realities.

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By Nir Kaissar

One of the most widely followed gauges of the stock market, for decades a reliable indicator of future returns, has led investors astray in recent years. Its misdirection comes down to the freakish earnings growth of big technology companies such as Apple Inc. and Alphabet Inc. But there's a way to revamp this market barometer as worries about elevated expectations and prices grow.

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