Legendary investor John Hussman has issued a stark warning about the sustainability of the current bull market in equities, suggesting that the stock market is on the brink of a significant downturn.
As President of the Hussman Investment Trust, he has observed that the recent surge in the S&P 500, which has achieved multiple record highs in 2024, is predominantly driven by investors' fear of missing out, despite underlying market weaknesses.
Hussman highlights that the market's internal metrics appear increasingly unfavorable, pointing to the ratio of nonfinancial market capitalization to corporate gross value-added—a measure he trusts—which indicates that the S&P 500 is at its most overvalued since 1929. This was just before the market plummeted by 89% during the Great Depression.
Further compounding these concerns, Hussman's firm forecasts that the S&P 500 could underperform Treasury bonds by an annual rate of 9.3% over the next 12 years. This projection is even more pessimistic than the period leading up to the 1929 crash, where the anticipated underperformance was 6% annually.
Hussman's analysis suggests that current market conditions closely resemble those of major bull market peaks historically, with the potential exception of 1929. While this does not guarantee an immediate market collapse, it underscores a scenario ripe with extreme valuations and unfavorable indicators, warranting a cautious or even bearish investment stance.
Despite his history of accurately predicting major market downturns in 2000 and 2008, Hussman has stopped short of an explicit forecast. However, his commentary clearly leans towards a grave view of the market's trajectory, emphasizing the extremity of the current speculative bubble—arguably the most severe in U.S. financial history—and the possibility of a market correction as steep as 65%.
Investor sentiment is also reflecting this pessimism, influenced by higher-than-anticipated inflation rates and adjusted expectations for Federal Reserve rate cuts. A recent survey by the American Association of Individual Investors found that only 39% of respondents maintain a bullish outlook on stocks over the next six months, signaling a growing caution among individual investors about the near-term future of the stock market.
