- John Hussman is again warning that stock market valuations are “extreme.”
- Hussman highlighted the breadth of overvaluation in stocks.
- He said the S&P 500 is facing 12 years of negative returns.
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Psychology plays a big role in how financial markets behave. Sometimes that can be a very bad thing.
Right now, when stocks are sitting just under all-time-highs, is one of those times, according to John Hussman, the president of the Hussman Investment Trust and a notorious market bear who called the 2000 and 2008 stock market crashes.
Hussman warned in his most recent commentary that investors are forgetting – or don’t know altogether – the role that equilibrium plays in markets, and are mistakenly speculating further on securities that have already seen massive appreciation on the prospect of future growth.
This behavior has pushed stock valuations up to “extreme” levels, putting them in a precarious position, Hussman said. One catalyst that could bring about a pullback, he added, is an underperformance of the economic recovery relative to investors’ expectations.
“It’s quite possible that the mental image in anticipation of a post-pandemic recovery may be more pleasant than the actual recovery itself,” he said in the June 13 commentary. “In that event, the glowing optimism currently built into record valuation extremes could be followed by quite a bit of…