Tags: John Hussman | stock market | invest | Correction

John Hussman: Expect a 40-55 Percent Market Correction

John Hussman: Expect a 40-55 Percent Market Correction
(Dollar Photo Club)

By    |   Wednesday, 18 November 2015 08:00 AM

The current stock-market bubble is poised to pop and investors must prepare for a 40 percent to 55 percent tumble from current lofty levels, warns star mutual-fund manager John Hussman, president of Hussman Investment Trust.

"The U.S. equity market is in a late-stage top formation of the third speculative bubble in 15 years,"  he writes in his weekly commentary.

"On the basis of measures best correlated with actual subsequent S&P 500 total returns across history, equity valuations remain obscene. We fully expect a loss in the S&P 500 in the range of 40-55%," he wrote.

"In the absence of favorable internals, we conclude not only that risk premiums in equities are razor thin, but that the continued shift toward risk-aversion among investors leaves the market vulnerable to abrupt spikes in risk premiums. This is an environment that has historically left the market open to vertical air-pockets, panics, and crashes," he wrote.

"So here we are, in what in hindsight will likely be called the “QE Bubble” — a moment in history where the most reckless and intentional encouragement of speculation by central bankers actually came to be viewed as not only acceptable but welcome. This is tolerated despite the clear evidence that yield-seeking speculation was the primary driver of malinvestment that created the housing bubble and economic collapse. We’ve still evidently learned nothing," he wrote.
 
"Investors don’t like to acknowledge bubbles. Yet somehow we have little doubt that a few years from now, they will look back at the present moment and ask that tragically perennial question: “What were we thinking?”

He isn't the only one who sees a major downturn ahead for U.S. stocks.

Blackstone President and COO Tony James said that stock market valuations are too high and that he sees a correction coming.

James cited a litany of troubles: the impact of the Paris terror attacks, higher U.S. interest rates on the horizon, weaker growth in China and problems in South American economies, CNBC reported.

"The cumulative effect of that is, where do you look for good news that's not already reflected in the market? Earnings of the S&P are flat at best, so I think stock prices have had a great run and it's time for a pause," he told CNBC. "We see a bit of a correction coming."

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The current stock-market bubble is poised to pop and investors must prepare for a 40 percent to 55 percent tumble from current lofty levels, warns John Hussman, president of Hussman Investment Trust.
John Hussman, stock market, invest, Correction
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2015-00-18
Wednesday, 18 November 2015 08:00 AM
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