- Investor John Husman said stocks appear to be in the most extreme bubble in history.
- The legendary investor believes that the stock looks as overvalued as it was in 1929 and 2021.
- This means the market could be at risk of a sharp correction, he said in a recent note.
John Hussman says stock valuations are as extreme as they were in 1929 and 2021, before the market crashes, putting investors at risk of experiencing a sharp decline.
The legendary investor responsible for the market crashes of 2000 and 2008 is trading higher this week as investors push the market to all-time highs on the back of the Fed's latest policy update, which reiterated its outlook for a rate cut in 2024. issued a new warning.
But the frenzy has left the market in a volatile situation similar to that before the 1929 crash or the 2021 market peak ahead of next year's bear market.
Husman said in a note Thursday that this outlook is supported by a number of valuation metrics. His investment firm's most reliable metric, the ratio of non-financial market capitalization to gross value added, is at its highest since the stock market peak in 1929, just before the market crash and the Dow plunged 89% from its all-time high. It's on par. -trough.
“My impression is that investors are currently enjoying a double top, the most extreme speculative bubble in U.S. financial history,” Husman wrote.
Hussmann has repeatedly warned that overspeculative market bubbles rarely end well for traders, and that in previous periods stock prices typically reach a speculative “limit” before suffering a sharp decline. .
He warned: “Although we are not observing any favorable valuations or favorable market internals at this time, the syndrome of overextension remains consistent with the risk of sudden air pockets, panics and crashes.” . “Despite the adaptations we have made this cycle, the current observable situation encourages a strong defensive posture here.”
As more investors turn bullish amid a months-long stock market rally, Hussman is one of the most bearish forecasters on Wall Street. He said in October that the S&P 500 was at risk of plummeting 63% if the speculative market bubble burst, sending the index to its lowest level since 2013.
He avoided making formal predictions in his latest warning, saying he wouldn't be surprised if a crash of that magnitude occurred.
