Market Watch: Stocks Headed for a 67% Downturn? Seems 'Preposterous' Now, But it Did in 2000 and 2007 Too, Says Fund Manager

February 06, 2020

Article by Shawn Langlois in Market Watch

It’s hard out there for a bear.

Despite a few notable hiccups along the way, the bull market continues to prove insanely resilient. The latest evidence of that was on display during Tuesday’s torrid session, as both the Dow Jones Industrial Average and S&P 500 were staging fierce rallies.

Does that change John Hussman’s mind about what lies ahead? Nope. The man behind Hussman Strategic Advisors is nothing if not consistent, and recent market action only has him digging in his heels in a bearish stance.

“Current hyper-valued extremes are likely to be followed by market losses on the order of two-thirds of value of the S&P 500,” he told clients in a note. “I recognize that the notion of a two-thirds market loss. seems preposterous. Then again, so did similar projections before the 2000-2002 and 2007-09 collapses.”

“Understand this: The more glorious this bubble becomes in hindsight, the more dismal future investment returns become in foresight,” he wrote. “Investment is not independent of price. Whatever they’re doing, it’s not ‘investment.’

Hussman bases his gloomy outlook on the view that valuations are out of whack — specifically, he pointed out, the S&P price/revenue ratio just reached a historical extreme.

He said he believes “the combination of hypervaluation and negative market internals,” are luring investors toward a trap door.

“I’m incredibly hopeful that investors will understand and learn that central lesson — drawn from my error in the recent half-cycle,” Hussman wrote. “What concerns me is that many investors seem to have drawn the ‘lesson’ that valuations don’t matter, that the Fed is omnipotent, and that stocks are always an ‘investment,’ regardless of the price.”

To read this article in Market Watch in full and view the relating charts, click here.

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