The extreme bubble in stocks 'will end in tears' with the S&P 500 plunging 64%, a long-time bear who called the 2000, 2008 crashes has warned. Here ar
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John Hussman, a specialist in identifying asset bubbles, predicts that the continuous surge in US stocks will ultimately lead to a distressing conclusion.
According to him, the S&P 500 is in danger of experiencing a significant decline of 64% due to sky-high valuations and unfavorable conditions within the market.
Below are six of the most notable quotes from a recent message by a well-established market pessimist.
In 2023, the stock market in the United States has witnessed a remarkable surge, benefiting from a convergence of subdued inflation, diminishing concerns about economic decline, and the buzz surrounding artificial intelligence.
However, don't count on the enthusiasm lasting for a significant duration, as per the insights from John Hussman.
The experienced skeptic of the stock market, who accurately predicted the crashes of 2000 and 2008, has recently reaffirmed his pessimistic view on US stocks. He cautioned that the S&P 500 index could face a staggering decline of 64%, which would burst what he described as an inflated and risky bubble caused by excessive demand for high returns.
The head of Hussman Investment Trust has formed his opinions on overvalued stocks and unfavorable "internals," believing that a significant stock market decline is required to bring market conditions back to their usual state.
The S&P 500 has experienced a 19% upswing in value thus far in the current year. This surge in value brings its total gains since the conclusion of the global financial crisis in 2008 to over 400%. According to data from macrotrends.net, the price-earnings ratio of the index, which is one of the key indicators monitored by investors, has risen from last year's lows of about 19 to approximately 26.
Presented below are the six most remarkable quotes from Hussman's latest note.
"We have noticed a specific pattern that has been commonly linked to sudden drops and significant declines in the S&P 500. This pattern encompasses challenging circumstances in the three key aspects that are crucial to our investment strategy: inflated market prices, unfavorable market trends, and excessive market expansion."
"The current blend of historically wealthy valuations, unfavorable internal factors, and excessive overextension positions our estimations of market return and risk – whether in the near future, medium term, complete cycle, or even spanning 10-12 years – at the most pessimistic levels we can define."
The possibility of a sudden drop or sharp decline in the near future is not a prediction, but rather a possibility that should not be dismissed. Additionally, considering that current valuations are higher than they have ever been, except for a few weeks around the peak in 1929, it is important to seriously consider the potential for an even more significant decline.
Currently, the excessive assessments we observe suggest that a decline of -64% in the S&P 500 is necessary to bring back ordinary long-term potential gains. I understand. That seems absurd. However, I have grown accustomed to formulating seemingly ludicrous risk approximations at the peak of speculative bubbles.
In spite of the excitement surrounding the market's recovery since October, I am still firm in my belief that the initial loss experienced in the market is just the beginning of a much bigger collapse. This collapse will mark the end of a highly speculative bubble driven by a strong desire for high yields, and it will be an unprecedented event in the history of the United States.
Indeed, to me, it is evident that this is a bubble. Absolutely, I am convinced that it will conclude disastrously.
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