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Daily Wealth: This Is the Riskiest Stock Market of the Past 100 Years

January 07, 2021
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Article by Dan Ferris in Daily Wealth

What if one year ago, you knew that over the course of 2020, a pandemic would shut down much of the global economy – creating the steepest economic contraction since the Great Depression...

Thousands of restaurants and other businesses would close their doors – leaving millions of Americans unemployed and desperate...

Violent protests would occur in dozens of American towns and cities...

The stock market would hit a new all-time high in late February only to plunge 34% in about one month...

The U.S. Federal Reserve would cut interest rates effectively to zero and print roughly $3 trillion to support the economy and the financial system...

And Congress would sign off on an unprecedented $2 trillion stimulus package – mailing personal checks directly to people's homes.

Assuming you knew all this one year ago, what would have been your guess for the performance of various asset prices this year?

Probably nothing like what we got.

Today, the U.S. stock market is more expensive – and therefore riskier – than at any time in the past century. You must understand that risk... because last year's roller coaster ride isn't over yet...

The stock market soared 68% off its March bottom last year. Would you have thought new all-time highs were even a remote possibility after that precipitous drop?

Would you have thought that despite a raging pandemic, political upheaval, and civil unrest, stocks would surge to their most expensive valuation in history – even more expensive than the 1929 and 2000 market tops?

The more expensive stocks become, the riskier they are to own. And that's what we're seeing today.

In a recent market comment, Hussman wrote...

“Presently, I expect that the completion of this market cycle is likely to involve a loss in the S&P 500 on the order of 65-70%. I realize, of course, that this sounds insane. The problem is that this projection is fully in line with a century of evidence and is consistent with the extent of market losses that would be run-of-the-mill given present valuation extremes.”

Asset manager Jeremy Grantham's firm, GMO, has studied a couple dozen asset bubbles throughout history. It also publishes seven-year return forecasts for various asset classes. Grantham recently called the current market a "'real McCoy' bubble" and added, "It's ....

To read this article in Daily Wealth in its entirety and view the relating charts, click here.

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