The stock market is currently facing conditions that rank among the worst in history, according to veteran investor John Hussman. In a note this month, Hussman, the president of the Hussman Investment Trust, warned investors of another potential market fallout due to the current “Cluster of Woe.”
Hussman has a history of predicting market downturns, including those in 2000 and 2008. His recent warning comes as market conditions are at their worst, with the most overvalued stocks since 2021 and the five weeks around the new year in 1929, according to his firm’s “most reliable valuation measures.” Any further increase in equities could lead to unfavorable internal market fundamentals, similar to those preceding the most extreme losses since 2007.
“We estimate that current market conditions now ‘cluster’ among the worst 0.1% instances in history — more similar to major market peaks and dissimilar to major market lows than 99.9% of all post-war periods,” Hussman stated.
Hussman also pointed out that other “similarly extreme instances,” such as the 2000 dot-com bubble, were followed by an “abrupt” stock market drop, ranging between 10%-30% over six to 10 weeks. Given the current market condition, Hussman warned that losses could be even steeper this time.
Hussman’s warning is in line with cautionary signals from other market experts. Earlier in January, Jon Wolfenbarger, a top strategist, warned of a potential stock market crash and year-long recession. Wolfenbarger relied on a variety of economic indicators that suggested an impending downturn. Similarly, renowned investor Robert Prechter, who predicted the 1987 stock market crash, cautioned that the current market situation is reminiscent of the years leading up to the 1929 crash.
However, Federal Reserve Chair Jerome Powell downplayed the possibility of an impending recession. In a recent interview with CBS 60 Minutes, Powell attributed the current economic conditions to distortions caused by the pandemic.
The warnings from market experts like Hussman, Wolfenbarger, and Prechter highlight the uncertainty and volatility present in the current stock market. Investors should carefully consider their investment strategies and seek professional advice to navigate these challenging times.
Disclaimer: The GPT-4-based Benzinga Neuro content generation system generates comprehensive and timely stories using the extensive Benzinga Ecosystem, including native data, APIs, and more. The article has been edited by Kaustubh Bagalkote.
