A notorious market bear who called the dot-com bubble warns stocks are still as overvalued as they were in 1929 and 2000, setting up the S&P 500 for a 'far deeper retreat' and a decade of negative returns
John Hussman expects a"far deeper retreat" in stocks, despite the S&P 500's 20% loss in 2022.Hussman called the 2000 and 2008 crashes.John HussmanHussman, the president of the Hussman Investment Trust who called the 2000 and 2008 market crashes, thinks that given where valuation levels started at the market's peak in January 2021 — and where they are now — the drawdown so far this year has been relatively minor.
"Despite being nearly a year into what we expect to be a far deeper retreat, the relatively shallow loss isn't even surprising," Hussman said in a recent commentary."The same thing happened in the first year of each of the three deepest post-war stock market collapses: 2000-2002, 2007-2009, and 1973-74."
Hussman's favorite valuation measure, which he says has the best track record of predicting long-term returns, is market capitalization of non-financial stock-to-gross value added, or total revenue. The current reading of the measure shows stock valuations still near where they were at the peak of the dot-com bubble over two decades ago."MarketCap/GVA is our most reliable valuation gauge in market cycles across history, including recent decades.
The above chart doesn't stretch all the way back to 1929, but Hussman shared another one that does. Below is another one of Hussman's preferred valuation measures: his proprietary margin-adjusted price-to-earnings ratio. Hussman said his models show the S&P 500 could fall another 60% in the months and years ahead, adding that investors should prepare a"very long, interesting trip to nowhere" for stocks.
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