AFMC - You Can Ring My Bell
2024-06-26 06:50:00 ET
Summary
- My impression is that the speculative market advance since 2009 ended last week.
- The current set of market conditions provides no historical examples when stocks have followed with decent returns.
- It’s worth noting that the average S&P 500 component has lagged T-bills since 2021, and the capitalization-weighted S&P 500 has been ahead of T-bill returns only since late-April.
With the market nearly 20% off its highs, it is rather easy to say that stocks are in a ‘bear market.’ However, this type of label is simply a snapshot and says nothing about future prospects for the market. The stock market is now fairly valued. We expect that many investors, particularly short sellers, will realize several months from now that they sold at wholesale. Reestablish a 100%, fully invested position. -John P. Hussman, Monthly Market Letter, October 12, 1990Over the following 25-year period, the annual total return of the S&P 500 averaged 10.1%
So yes, we believe that the crash risk of the market is extremely high. The short term, however, is unclear. Nothing in the market is certain, but we don’t know any other way to approach the market than to ask “What are the conditions now?” and “How have those conditions historically been resolved?” In this case, we have only one answer. – John P. Hussman, Monthly Market Letter, March 7, 2000
Last week, we noted in our weekly market comment that the market has recruited enough ‘trend uniformity’ to shift the Market Climate to a favorable condition. As usual, we don’t forecast, we identify. Our view is not that stocks must advance, nor that the economy must expand. Rather, current conditions match those that have historically generated favorable market returns, on average. – John P. Hussman, Monthly Market Letter, May 12, 2003
Given my general avoidance of forecasts, there are very few situations when I would state my views about the market as a “warning.” Unfortunately, in contrast to more general Market Climates that we observe from week to week, the current set of conditions provides no historical examples when stocks have followed with decent returns. Every single instance has been a disaster. – John P. Hussman, Examine All Risk Exposures, October 15, 2007
Probably the best way to begin this comment is to reiterate that U.S. stocks are now undervalued. Last week, we also observed early indications of an improvement in the quality of market action, and an easing of the upward pressure on risk premiums. In 2000, we could confidently assert that stocks would most probably deliver negative total returns over the following 10-year period. Today, we can comfortably expect 8-10% total returns even without assuming any material increase in price-to-normalized-earnings multiples. Given a modest expansion in multiples, a passive investment in the S&P 500 can be expected to achieve total returns well in excess of 10% annually.
– John P. Hussman, Why Warren Buffett is Right (and why Nobody Cares), October 20, 2008
I may as well just say it. Based on the present combination of extreme valuations, unfavorable and deteriorating market internals, and a rare preponderance of warning syndromes in weekly and now daily data, my impression is that the speculative market advance since 2009 ended last week. Barring a wholesale shift in the quality of market internals, which are quickly going the wrong way, any further highs from these levels are likely to be minimal. In contrast, current valuation extremes imply potential downside risk for the S&P 500 on the order of 50-70% over the completion of this cycle.
Emphatically, nothing in our investment discipline relies on a market peak, and every element of our discipline remains open to a change in market conditions that would encourage a more constructive outlook. We just don’t see those conditions at present....
You Can Ring My Bell