CAPE Ratio Hits Warning Signal: Defensive Stocks to Watch

The Shiller CAPE ratio has reached its second-highest level on record, signaling a potential warning sign for investors. This metric measures how expensive stocks are relative to their historical earnings, and it's only been above 40 one other time over the last 150 years.

Last time this happened in 1999, the S&P 500 Index lost nearly half its value over the next two and a half years. The ratio has also hit high levels in 1929 and 2022, foreshadowing bear markets in stocks. Despite this warning sign, the author of the article is not pulling back but instead focusing on building more defensive holdings.

The author suggests investing in Berkshire Hathaway, Procter & Gamble, and Realty Income due to their strong fundamentals and ability to withstand market downturns. These companies have a history of performing well during stock market corrections and offer a solid income stream and real returns during a downturn.