Current all-time highs in the stock market may suggest a vigorous bull run, yet John Hussman, a renowned bearish analyst known for accurately predicting the 2000 and 2008 financial downturns, foresees a potential crash.
In his latest commentary, Hussman posits that stocks could plummet by as much as 70% in this cycle, a stark contrast to the ongoing market exuberance as the S&P 500 sets new records in 2024.
According to Hussman, President of the Hussman Investment Trust, this significant run-up is primarily fueled by investor impatience and a prevalent fear of missing out—factors he believes are setting the stage for an imminent market correction. "We observed a critical mass of speculative behaviors and valuation extremes last Friday that historically signal heightened market risk," he noted in his Tuesday briefing.
Hussman points out several red flags indicating potential market instability: inflated valuations, noticeable divergences across different stock sectors, and a disproportionate bullish sentiment. A particular concern he highlights is the increasing number of stocks hitting new 52-week lows despite overall market indices reaching new heights.
Hussman characterizes the recent market upswing as clinging to the remnants of past market excesses rather than a genuine, sustainable bull market progression. He estimates that the S&P 500 might retreat by 50-70% by the end of this cycle, aligning long-term expected returns with more traditional stock market norms.
Despite his distinctly bearish stance, where Hussman has consistently warned of a decline exceeding 60%, the broader consensus among leading Wall Street strategists remains optimistic, with predictions of the S&P 500 maintaining levels above 5,000 throughout 2024. This optimism is partly driven by an improved macroeconomic landscape compared to the early 2023 predictions of a looming recession.
Hussman has consistently made headlines with his predictions of severe market corrections and anticipates a decade of negative returns for equities. Even as the market continues to surge, he persists with his predictions of a looming severe downturn.
In his analysis, Hussman references his firm's most trusted metric, the ratio of non-financial market capitalization to corporate gross value-added, which currently surpasses the peak levels seen in 1929, before the Dow collapsed by 89%. He also notes that the standard S&P 500 price to forward operating earnings multiple is at an elevation only seen around the peaks of 2000 and 2022. Hussman concludes, "This period since early 2022 appears to be the elongated climax of one of the greatest speculative bubbles in U.S. history."
