Stock market reminiscent of 1929: Nobel Prize-winning economist

A Noble Prize-winning economist has drawn parallels between the attitudes of stock market investors in 2022 and those of investors in the lead up to the historic 1929 stock market collapse.

Robert Shiller manages large-scale investor surveys that are used to compile stock market confidence indexes produced by the Yale School of Management.

This week, Shiller revealed around 75% of individual investors recently surveyed believe the market is overvalued.

“Individual investors think the market is overpriced, they haven’t thought so, so strongly, since the turn of the century when the millennium bubble burst,” said Schiller on a new Economist podcast.

Yet, Shiller said those same investors continue to pour money into stocks because of an overwhelming sense of FOMO (fear of missing out).

“The market is often in a situation where price movement is not justified by fact. There’s a sense of regret that we didn’t get into Bitcoin (for example) earlier, often there’s this fear of missing out… They don’t want to think that they were one of the laggards, even if they know that it might be overpriced.

“It reminds me of 1929, I don’t mean to be alarmist but people thought the market was overpriced apparently in 1929 before the crash. But it kept going up so they kind of through maybe I’m wrong.

“I think we’re (currently) in that situation too.”

When the stock market becomes fun… What happens next?

Investor sentiment isn’t the only parallel between today’s market and that of 1929 according Shiller.

He says the proliferation of social investing through online platforms such as Reddit has created a sense of ‘fun’ to stock investing and the same thing occurred in 1929.

“There was an explosion of fun things to do in the 1920’s with stocks, and I think we’re in a similar situation. They had what you called ‘bucket shops’ where you could go and gamble on stock prices and they were fun places to visit until they were kind of shut down.”

Robert Schiller received a Nobel Prize in Economic Sciences in 2013 and is currently a Sterling Professor in Economics at Yale University.

He isn’t the only prominent expert to link the current market to that of 1929.

Late last year, legendary investor Jeremy Grantham, said he believes U.S. stocks are in the midst of a “magnificent bubble” that would prove to be greater than that of the late 1920’s.