It's A Bear Market FOMO Bubble In Early Stage Of Collapse, Warns Hedge Fund Manager Who Foresaw 2008 Crisis

A bear market rally motivated by the fear of missing out on the continuation of a bubble that is actually in the early stage of collapse is behind the current market advance.

It’s what hedge fund manager John P. Hussman, President of Hussman Investment Trust, thinks about the current state of the market.

The expert noted in his most recent commentary that the most historically reliable valuation measures about the stock market are currently at or above their 1929 and 2000 extremes, outperforming every level seen in history prior to October 2020.

“These Are Bubble Valuations”

Hussman noted that historically, periods of extreme market valuations have often preceded significant market downturns. The author suggests that investors should be cautious and prepared for potential losses.

The S&P 500’s forward price-to-earnings ratio (currently at 19x) stands high from a longer-term historical perspective. 

Hussman wrote in July 2007 that “once the market reaches overvalued, overbought, and overbullish conditions, stocks have historically lagged behind Treasury bills,” and he added that this seems to be happening again now.

In every other market cycle across history, there was always a limit to speculation,” the expert warns.

Read also: Top Wall Street Analyst Warns Of ‘Proper Bust’ In 2023: Stocks Are Trading In ‘High Risk Zone’

The forward P/E ratio for the seven most valuable U.S. stocks was calculated using information from Benzinga Pro.

Economic Risks Are On The Rise

Hussman warns that the likelihood of a recession is rising, but that we won’t know for sure until we see a significant decline in the job market, which is always a lagging indication.

The level of pressure on new production, which tends to be months ahead of headline activity data, is already at levels traditionally associated with an impending recession.

“It's employment in the coming six months that we would expect to weaken,” the manager wrote.

Now Read: Recession Always Six Months Away? Analyst Rebukes Forecasters’ Perpetual Economic Pessimism

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