The Trump effect is keeping the 'overpriced' bull market alive: Yale’s Robert Shiller

Nobel Prize-winning economist Robert Shiller hasn't been the most optimistic voice on Wall Street, but he isn't writing off the bull market.

His chief reason: President Donald Trump's pro-business influence.

"There is a sort of optimism about the markets under Trump, and that's continuing. I don't see a reason for it about to change," the Yale professor said Tuesday on CNBC's "Trading Nation." "There's something about how the world is reacting to the president. Something about his self-confidence which is gradually lifting our spirits."

Shiller believes the momentum is so powerful, it's essentially propping up a bull market that is getting long in the tooth.

"We've seen an overpriced stock market. We've seen concerns about that for years now," he said.

Shiller acknowledged it's definitely possible the U.S. stock market could generate gains this year, but he warned the Trump effect "is not a very reliable thing." So, he said the best strategy is to diversify abroad in this environment.

"If you have been overexposed to the United States in your portfolio, this is a time to reconsider that," Shiller said. "Not to pull out, but to balance things ... Europe is cheaper than the U.S.."

Shiller's thoughts came as stocks were selling off in reaction to political turmoil in Italy. There's fear new elections in the euro zone's third-largest economy could put populist parties in power that will move toabandon the euro.

"We got news today [Tuesday]about Italy that is troubling," Shiller said — adding he was optimistic Italy would work out its problems and prevent a crisis.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's Closing Bell (M-F, 3PM-5PM ET). In addition, he contributes to CNBC and CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

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