The stock market is currently riding high, with investors enjoying record highs and the promise of continued rate cuts from the Federal Reserve. However, legendary investor John Hussman is sounding the alarm, warning that stocks are in the most extreme bubble in history.
Hussman, known for accurately predicting the market crashes of 2000 and 2008, believes that stock valuations are as overvalued as they were in 1929 and 2021 before major market downturns. This extreme speculation has put the market at risk for a steep correction, according to Hussman’s recent note.
One of the key indicators Hussman points to is the ratio of nonfinancial market capitalization to gross value-added, which is currently at its highest level since the 1929 stock market peak. This level of speculation, combined with unfavorable valuations and market internals, has Hussman concerned that the market could be headed for a crash.
While many investors are bullish on the market’s continued rally, Hussman remains one of the most bearish forecasters on Wall Street. He has warned that the S&P 500 could plunge 63% once the speculative bubble bursts, potentially sending the index to its lowest level since 2013.
Hussman’s warnings serve as a reminder that even in times of market exuberance, it’s important for investors to remain cautious and consider the risks of an overvalued market. As Hussman himself stated, “Present observable conditions encourage a strongly defensive stance here.”
