I take a slightly different approach to look at the relative value of stocks compared to historical norms, but reach the same conclusion as Dr. Schiller. The analysis, as summarized in the graph below, simply looks at the ratio of the traded value of the DOW relative to the nominal GDP (stated in billions) during the same time period. Most recently the U.S. nominal GDP was just over $17.3 Trillion, and the DOW was trading at 17,098 at the end of August giving a ratio of .98.
The ratio is functionally useful in highlighting periods when the market is in outlier territory. Presently, the stock market indices (DIA) (SPY) (QQQ) by relative measure are expensive. However, history has demonstrated stocks can trade at these levels for extended periods before a steep correction occurs. Since the 1990s, expensive in relative terms is a necessary but not sufficient reason for a major decline. Saying stocks are expensive is different from trying to assess whether they are at a peak, and a portfolio adjustment toward higher liquidity and lower risk is a good play.
What is the likelihood that the S&P500 at 2000 is a peak?