- A high concentration of warning signs suggests a major market correction is coming, John Hussman said.
- "There's nothing magical about these syndromes, but when dozens of them appear at the same time, we pay attention."
- Despite its warning, Wall Street remains optimistic and expects the index to remain above 5,000 this year.
A growing number of alarms on the market suggest that S&P 500 It has finally reached its speculative peak, John Hussman consistently asserts. wrote on Monday. He says a big accident is likely to happen next.
In a new note, the well-known bear doubled down on his outlook for a 50% to 70% correction for the benchmark this cycle. It is a call that the president of Hussman Investment Trust has made. repeatedly outlinedbased on a series of market warning signals tracked by your company.
For example, there's the fact that negative market leadership is at a five-year high, and stocks are hitting new lows faster than they're hitting new highs.
"On its own, I consider it a useful but insufficient indicator of market conditions," Hussman said. "However, combined with much broader speculative warnings, it is one of the 'last straws' I described a few weeks ago."
As of Friday, these "warning syndromes" tracked in daily data have catapulted beyond counts seen in 2000, 2007, late 2018 and early 2020, years all associated with an accident.
"There is nothing magical about these syndromes, but when dozens of them appear at the same time, we pay attention," he wrote.
While the measures alone are only enough to highlight the short-term danger, unfavorable market internals should also serve as a wake-up call. Meanwhile, current extremes in market valuation make this a long-term risk as well.
According to Hussman's most reliable indicator โ the ratio of non-financial market capitalization to gross corporate value added โ market valuations even exceed the levels of 1929, when the Dow Jones plunged 89% from its peak to its trough. .
"I don't think it's possible to identify market peaks and dips in real time, but there are unusual times in history when one sees a sudden avalanche of conditions that suggest a speculative climax or a risk-averse capitulation," he said. .
While this likely means new highs in the S&P will be lows, Hussman's projected correction would not necessarily be immediate, he said. Meanwhile, most of Wall Street remains bullish on the market and generally expects the index to hold up. more than 5,000 until this year.
Hussman's record
For the uninitiated, Hussman has repeatedly made headlines by predicting a stock market crash surpassing 60% and predicting a full decade of negative stock returns. And as the stock market rose sharply, he persisted with his apocalyptic calls.
But before you write off Hussman as a permanent bumbling bear, consider his record again. These are the arguments he has put forward:
- In March 2000 he predicted that technology stocks would plunge 83%, then the tech-heavy Nasdaq 100 index lost an "improbably accurate" 83% over a period from 2000 to 2002.
- In 2000 he predicted that the S&P 500 would likely earn negative total returns over the next decade, and it did.
- In April 2007 he predicted that the S&P 500 could lose 40%, but then lost 55% in the subsequent crash from 2007 to 2009.
However, Hussman's recent returns have been less than stellar. His Strategic Growth Fund is down more than 50% from December 2010 to April. In comparison, the S&P 500 has risen significantly over the period.
