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Stock Market Warning

The stock market’s recent record highs mask concerning signals we should carefully consider. With the Shiller P/E ratio reaching 38.18 in November 2024—a level seen only twice before in history—market professionals are increasingly cautious about potential corrections ahead.

Until last week, I had never heard of the Shiller P/E ratio. I understood Profit to Earnings, but not Shiller. In case you’re like me, let me explain what I learned. The Shiller PE (or CAPE ratio) is a way to measure if the stock market is overvalued or undervalued. It compares the price of the S&P 500 to its average inflation-adjusted earnings over the past 10 years. It’s typically used to help investors see the bigger picture and not get caught up in short-term market swings.

Here’s why this matters right now:

  1. The Shiller P/E ratio stands at more than double its historical average of 17.17, a level previously seen only during the dot-com bubble and early 2022’s market peak. Historically, readings above 30 have preceded significant market corrections ranging from 20% to 89%.
  2. The U.S. is experiencing its first decline in physical money circulation since the Great Depression. The less money in circulation, the less money people have to spend.
  3. There’s also something happening with long-term rates, like a 10-year treasury yield, which has fallen below shorter-term rates, like a 2-year treasury yield. This has historically been an indicator of a looming recession.
  4. While current market enthusiasm is partially driven by AI advancements and potential political developments, these factors may not justify such elevated valuations.

But wait, the stock and crypto markets are at record highs? How can this happen, and we have all these indicators of a recession in the next 24 months?

Several things come into play. Some numbers are considered “lagging indicators.” When we get a jobs report, it’s past data, whereas the stock market is real-time. Investor psychology could be having an impact, especially with AI, and hopes for a soft landing. We might see industry-specific recession indicators that don’t impact the full market. Heck, we could be enjoying short term gains, and they just might not be sustainable.

What can we do?

Industry Focus: The market is going to be wonky in several industries. Is now the time to consider a change in focus? If this is a path you’re going down, ask us, and we’ll provide you with training around exploring a new niche.

Cash Flow Management: Cash is king, and we should all be hoarding it right now. Consider distributed and extended payment terms with your clients to preserve cash flow.

Strategic Opportunities

Despite market concerns, several opportunities emerge:

  1. AI Integration: Please set up a page on your site offering AI placement services:
  2. Counter-Cyclical Planning: If the economy crashes, what kinds of people are still needed? Mostly profit center. Do you work in the profit center or cost center? Is it time to consider this?

Long-Term Perspective

While market corrections can be concerning, it’s important to remember:

  •     Bear markets typically last around 9.5 months
  •     Bull markets endure for about 2 years and 9 months
  •     Economic expansions significantly outlast recessions

For recruiting firm owners, this means focusing on building resilient operations while preparing to capitalize on opportunities that emerge during market transitions.

The key to success will be maintaining flexibility, building strong client relationships, and positioning your firm as a strategic partner that can add value in both bull and bear markets.

Stop working in a silo! Get the support you need from expert coaches and a group of high performing peers. Learn more below.

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Tricia Tamkin, headhunter, advisor, coach, and gladiator. Tricia has spoken at over 50 recruiting events, been quoted in multiple national publications, and her name is often dropped in groups as the solution to any recruiters’ challenges. She brings over 30 years of deep recruiting experience and offers counsel in a way which is perspective changing and entertaining.

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