Overall, then, the stock market stands at the highest level of valuations in U.S. history, easily eclipsing the extremes of 1929 and 2000.

 

"It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so." 

Mark Twain

When desire disagrees with judgment, there is a disease of the mind: and to make a man forget the past, and blind him to the future, is as easy as making him drunk. The impression of invincibility is disaster itself. The stronger the illusion, the greater the fall.”

– Barbara Tuchman, The March of Folly

The Impression of Invincibility

John P. Hussman, Ph.D.
President, Hussman Investment Trust

July 20, 2025

With our most reliable stock market valuation measures at the highest extremes in U.S. history, record negative readings on our most reliable “equity risk premium” gauge (estimated S&P 500 total returns vs. Treasury yields), and the narrowest junk bond risk premiums in history, it’s useful for investors to remember that a market crash is nothing but risk-aversion meeting a market that is not priced to tolerate risk.

My impression is that the exuberance of the moment is too strong for investors to care about history. As is true in every bubble, investors are undoubtedly convinced that we’re in a new era to which history doesn’t apply. Simply observe corporate profit margins, for example, and the fact that they haven’t eroded in years, and it’s natural to imagine that they’ve simply established permanent highs beyond all historical experience.

We’ve had two decades of “free money” – not only fiscal deficits, but monetary policy that – for much of the past decade – funded those deficits by flooding the economy with zero-interest cash, which also significantly reduced corporate interest costs. That’s where the record profits have come from. It’s not a theory. It’s an accounting identity.

Remember also that despite the emergence of the internet, smart phones, networking, cloud computing, and countless other technological breakthroughs in recent decades, S&P 500 revenues, corporate profits, and GDP have grown slower, not faster, than in the decades prior to 2000. We forget. In the exuberance of this moment, the S&P 500 information technology index is priced at valuations that embed, and now require, a permanently high plateau in profit margins and growth rates.