The stock market (^GSPC) is trading at all-time highs. But the prices have been outpacing earnings growth, sending valuation measures like the cyclically-adjusted price-earnings (CAPE) ratio to troublingly high levels.

Robert Shiller, the Nobel Prize-winning economist who popularized CAPE, shared his thoughts about the U.S. stock market with Yahoo Finance’s Jen Rogers.

“My latest kick is to be thinking in terms of narratives, stories that drive the market,” Shiller said at the World Economic Forum in Davos, Switzerland. “In some sense, we’re similar to the 1920 — I’ll say the ’28 market.”

Back then, the stock market had been roaring higher — all the way up until it crashed spectacularly in 1929.

“Calvin Coolidge was president. Pro-business,” Shiller noted. “Everything looked good. Anti-regulation. Same story. That’s part of it.”

Today the U.S. has pro-business President Donald Trump, who has been pushing aggressively for deregulation. Similar to 1928, the economy was growing, but there were also plenty of folks warning about the overpriced market.

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“There were a lot of people then who saw that the market was getting overpriced,” he said of the 1928 experience. “It was a common observation. But it seemed like it just kept going up. And people started to wonder, ‘When is it going to correct?’ And somehow, that built steam. And eventually, it corrected.”

Shiller stopped short of suggesting that the stock market was doomed to crash next year.

“I keep trying to figure out what the narrative is,” he said. “I think that economists have to be more expansive in this dimension. They don’t like to talk about narratives.”

He said that a narrative that may explain why people are buying stocks is that it “makes you feel better about yourself in one way or another.”

“Young people today have to plan for the next 50, 70 years,” he said. “So how do they do that now? So I think that gives an emotional coloring to all their decisions. And it might make it more acceptable to invest in stocks, even if they look overpriced. Especially tech stocks.”

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Sam Ro is managing editor at Yahoo Finance. Follow him on Twitter: @bySamRo

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