Market

Insanity!

Extrapolating Growth

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

From 2009 to 2018, the S&P 500 price revenue ratio advanced from less than 0.7 to a breathtaking multiple of 2.4 early this year – the highest level in the history of the U.S. stock market. 

The upshot is this. Measured from their highs of early-2018, we presently estimate that the completion of the current cycle will result in market losses on the order of 

-64% for the S&P 500 Index, -57% for the Nasdaq 100 Index, -68% for the Russell 2000 Index, and nearly -69% for the Dow Jones Industrial Average.

DYI:  Ten twenty or thirty years from now when market historians write books about this time period the best they will come with is this: “What were investors thinking??”  John Hussman of the Hussman Funds is right along side DYI.  I expect a market downturn from peak to trough of 60% to 75%! 

What are investors thinking today??  I’m as baffled just as much as market historians will be in the future as investors [actually speculators] have thrown caution completely to the wind.  Price to sales ratio is the highest in all of recorded U.S. market history.  Think about that for a moment.  That blows past the market top of 1902, 1929, 1937, 1966, 2000 and 2008!  If I was writing the history the best explanation for investors throwing caution to the wind is that all stocks have been pushed up dramatically as opposed to during the late 1990’s when high tech stocks were the rage and it was easily to see that portion of the market as nothing less than rank speculation.  With anything and everything “jack up” it is much harder to see any speculation let alone to a rancorous degree.

Below is a chart not based on price to sales but from price to earnings.  Based on those valuations the 2000 top is the most overvalued and this being the Dividend Yield Investor Blog the 2000 top [S&P 500] had the lowest dividend yield of 1.01% in all of U.S. market history!  So much for going down memory lane staying with today no matter what type of valuation method you use the result is the same.  The market is way overvalued hence future returns will be tepid at best and highly likely to rack up losses.

DYI