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The stock market is about to crash from its extreme highs, said legendary investor John Hussman.
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Hussman said the stock market reflects the extremes that led to the 1929 crash.
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He previously said that such a sharp 65% market crash would not surprise him.
According to legendary investor John Hussman, the extreme bull market in the stock market is about to end as overly optimistic investors have pushed stocks to their most extreme valuations in nearly a century.
The president of Hussman Investment Trust issued another bearish warning on stock markets this week, counteracting stocks’ previous strength in 2024. The S&P 500 has broken through a series of record highs this year and has regained momentum in recent days after a lackluster month in April.
But the rally was largely due to a “certain impatience and fear of missing out” among investors — and market internals looked “unfavorable,” Hussman said in a note.
His firm’s most trusted valuation measure for stocks, the ratio of nonfinancial market capitalization to corporate gross value added, shows the S&P 500 valued at its most extreme level since 1929, just before the market plunged 89%-trough.
Hussman’s firm expects the S&P 500 to underperform Treasuries by 9.3% per year over the next 12 years, based on his firm’s internal metrics. That’s the worst 12-year performance the metric has ever predicted — even worse than in 1929, when market internals suggested the S&P 500 would underperform Treasuries by 6% annually over the following 12 years.
“Statistically speaking, current market conditions more closely resemble a major bull market peak than any other point in the past century, with the possible exception of the 1929 peak,” Hussman said. “This is not a guarantee that the market will crash or that it will not be able to continue to develop. Still, given the combination of extreme valuations, unfavorable market internals, and dozens of other factors that rank among the most “top-performing” factors in history, we are perfectly fine with a risk-averse, even pessimistic outlook.”
Hussman, who was among the investors who predicted the stock market crashes of 2000 and 2008, has refrained from making an official stock forecast. Still, he strikes an extremely pessimistic tone about the future outlook for stocks.
He previously said stocks looked like they were in the “most extreme speculative bubble in U.S. financial history,” adding that a plunge of up to 65% wouldn’t surprise him.
Retail investors are also starting to chafe at stocks as they weigh higher-than-expected inflation and scale back their expectations for Fed rate cuts this year. According to AAII’s latest investor sentiment survey, only 39% of investors said they were bullish on stocks over the next six months.
Read the original article on Business Insider