John Hussman, a well-known market skeptic, asserts that the S&P 500 has finally reached its speculative peak, with a significant crash likely to follow.
In a recent note, Hussman reiterated his forecast of a 50%-to-70% correction for the benchmark index. This prediction is based on various market red flags tracked by his firm, Hussman Investment Trust.
One major concern is the current level of negative market leadership, which is at a five-year high. More stocks are hitting fresh lows than breaching new highs, indicating market weakness. "While this alone is a useful gauge of market conditions, it becomes far more significant when combined with broader speculative warnings," Hussman noted. He described this as one of the "last straws" in his recent assessments.
As of last Friday, the "warning syndromes" monitored by Hussman have surpassed levels seen in 2000, 2007, late-2018, and early-2020—all years associated with significant market downturns. "There's nothing magical about these syndromes, but when dozens of them activate simultaneously, we pay attention," he wrote.
Hussman emphasizes that while these measures alone signal short-term risks, the unfavorable market internals also highlight long-term dangers. Current market valuation extremes exacerbate these risks. Hussman's most reliable gauge, the ratio of nonfinancial market capitalization to corporate gross value-added, indicates that market valuations are now higher than those in 1929, just before the Dow plunged 89%.
"I don't believe it's generally possible to pinpoint market peaks and troughs in real-time, but history shows us that certain conditions can suggest a speculative climax or risk-averse capitulation," he said. Although this likely means the S&P will see minimal further gains, Hussman cautions that his projected correction might not occur immediately. Meanwhile, most of Wall Street remains optimistic, expecting the index to stay above 5,000 through the year.
Hussman's Track Record John Hussman is known for his bold market predictions, including a forecast of a stock-market decline exceeding 60% and a decade of negative equity returns. Despite the market's general upward trend, he has maintained his bearish outlook.
His track record includes some accurate calls:
In March 2000, he predicted an 83% plunge in tech stocks, which the tech-heavy Nasdaq 100 experienced between 2000 and 2002.
He forecasted negative total returns for the S&P 500 over the following decade in 2000, which came to pass. In April 2007, he predicted a 40% loss for the S&P 500, which then fell 55% from 2007 to 2009.
However, Hussman's recent performance has been less impressive. His Strategic Growth Fund has declined by more than 50% since December 2010, whereas the S&P 500 has seen significant gains over the same period.
