In a recent analysis by legendary investor John Hussman, he warned that the stock market is currently in the most extreme bubble in history. Stocks are looking as overvalued as they were in 1929 and in 2021, which could potentially lead to a steep correction.
Hussman, known for accurately predicting the 2000 and 2008 market crashes, pointed to various valuation measures to support his warning. His firm’s most reliable measure, the ratio of nonfinancial market capitalization to gross value-added, is currently at its highest level since the 1929 stock-market peak.
According to Hussman, investors are currently experiencing the double-top of the most extreme speculative bubble in US financial history. He has repeatedly cautioned that over-speculative market bubbles rarely end well for traders, with stocks eventually hitting a “limit” to speculation before experiencing a sharp decline.
Hussman’s bearish outlook contrasts with the optimism of many investors who have been bullish amid the stock market’s recent rally. He previously warned in October that the S&P 500 could plummet by 63% once the speculative bubble burst, potentially reaching its lowest level since 2013.
While Hussman has refrained from making an official forecast in his recent warnings, he emphasized the importance of taking a defensive stance in the current market environment. With shaky valuations and market internals, coupled with signs of overextension, investors should be prepared for the risk of an abrupt air-pocket, panic, or crash.
As the market remains at all-time highs fueled by the Fed’s latest policy update, it’s essential for investors to proceed with caution and consider Hussman’s warnings. With history as a guide, being prepared for potential market downturns can help safeguard investments against future risks.
(Source: Business Insider)
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