By multiple measures, US equity valuations are close to the highest on record.
Investor and former professor John Hussman doesn’t think this is a sustainable situation, and forecasts that stocks will see negative returns over a 12-year period.
Hussman’s perma-bearish views have seen mixed success in the past, and a good number of Wall Street strategists are bullish on US stocks through 2018.
As the equity bull market has climbed into rarefied air, investors have continuously come up with new ways to rationalize the rally.
Right now, they like to cite earnings growth, which has expanded for several quarters after a prolonged rough patch. They also frequently mention interest rates that, despite hawkish signals from central banks, have remained low, supplying the market with a seemingly endless supply of cheap money.
On the other side of the spectrum, John Hussman, the president of the Hussman Investment Trust and a former economics professor, thinks that the investment community is unwisely ignoring the most stretched valuations in history on the heels of a nearly 300% bull market run. Ever the outspoken bear, Hussman says investors are being willfully ignorant, which has stocks at risk of a drop that could reach 63% and send the market spiraling into a full decade of negative returns.
It wouldn’t be the first time in history this has happened. But Hussman thinks this crash will be different, because the reasons for market instability are “purely psychological” this time around, according to a recent blog post.
‘US equity market valuations are at the most offensive levels in history’
At the root of Hussman’s pessimistic market view are stock valuations that look historically stretched by a handful of measures. According to his preferred valuation metric — the ratio of non-financial market cap to corporate …read more
Source:: Business Insider