Tags: Hussman | 940 | stocks | value

Hussman: Stocks More Than 100 Percent Overvalued

By    |   Wednesday, 29 April 2015 06:00 AM

The stock market might be hovering near record highs now, but star mutual fund manager John Hussman, president of Hussman Investment Trust, doesn't think it will last.

"On the basis of valuation measures best correlated with actual subsequent market returns, we can say with a strong degree of confidence that the S&P 500 would presently have to drop to the 940 level in order for investors to expect a historically normal 10-year total return of 10 percent annually," he writes in his weekly commentary.

"That 940 figure for the S&P 500 would not represent some extreme, catastrophic outcome. It's not a level that would even represent undervaluation from a historical perspective. It's the level that we would associate with average, historically run-of-the-mill long-term equity returns. As we observed at the 2000 peak, 'if you understand values and market history, you know we're not joking,'" Hussman explains.

"That said, if one believes that depressed interest rates warrant not only a low prospective return on stocks, but also virtually no risk premium whatsoever despite their significant full-cycle volatility, then you might be quite happy with the prospect of a 1.4 percent annual nominal total return on the S&P 500 over the coming decade, which is what we presently estimate."

Few experts would go as far as Hussman, but many say now would be a good time to take some profits.

Since the Federal Reserve might raise interest rates this year and economic growth is slowing, the backdrop isn't so hot for stocks, says Steven Weiting, chief investment strategist at Citi Private Bank.

Many economists expect the central bank to move in September. And the Atlanta Federal Reserve's forecasting model puts first-quarter GDP growth at only 0.1 percent.

"U.S. stocks are still favored as an asset class, and our recommendation is aimed at de-risking, given the monetary and economic backdrop," Weiting writes in a commentary obtained by MarketWatch.

"We have reduced our overweight position in U.S. large-capitalization equities from 3 percent to 2 percent. This reduces the overweight to one that is somewhat below the U.S. share of global market capitalization."

Meanwhile, S&P Capital IQ suggests that investors drop their U.S. stock exposure to 45 percent of their portfolio from 50 percent and boost their cash weighting to 15 percent from 10 percent.

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The stock market might be hovering near record highs now, but star mutual fund manager John Hussman, president of Hussman Investment Trust, doesn't think it will last.
Hussman, 940, stocks, value
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2015-00-29
Wednesday, 29 April 2015 06:00 AM
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