<blockquote>'Investors should be particularly attentive to the fact that the
median component of the S&P 500 is now far more overvalued than in 2000, 2007, or indeed in any prior point in history, and unlike 2000, small-capitalization indices are also breathtakingly overextended.'
- John P. Hussman, Ph.D.,
When Speculators Prosper Through Ignorance, February 20, 2017</blockquote>
'At present, our estimate based on this and other reliable measures is that the S&P 500 is likely to scratch out a barely positive total return between now and 2029, with all of that gain coming from dividends, leaving the S&P 500 Index itself lower at that date than it is today..'<blockquote>'The late-1990’s bubble focused the greatest distortion on technology and internet stocks, and was followed by a -50% loss in the S&P 500 and an -83% collapse in the tech-heavy Nasdaq 100. The next bubble into 2007 was broader, but was still dominated by financial and mortgage-related speculation. That bubble was followed by a 55% loss in the S&P 500 during the global financial crisis. The current bubble has been driven by years of Fed-induced yield-seeking speculation, and has infected risk assets from global debt, to junk bonds, to every corner of the equity market. My friend Jesse Felder of The Felder Report appropriately calls this the “everything bubble.”
At present, our estimate based on this and other reliable measures is that the S&P 500 is likely to scratch out a barely positive total return between now and 2029, with all of that gain coming from dividends, leaving the S&P 500 Index itself lower at that date than it is today. That shouldn’t be a terribly surprising statement. The S&P 500 didn’t durably break its March 24, 2000 high of 1527.46 until March 5, 2013. I expect the completion of the current cycle will not only revisit that level on the S&P 500, but that it will also wipe out the entire total return of the S&P 500 since 2000. Those are the long-term consequences of extreme overvaluation, and they have been throughout history.
Remember that the S&P 500 registered negative total returns for a buy-and-hold strategy for the nearly 12-year period from March 2000 all the way to November 2011. I expect that’s about what we’ll observe from current extremes. While investors seem eager to lock themselves into passive strategies that have performed well in the rear-view mirror of this climb to obscene valuations, I expect the greatest asset to investors in the coming decade will be adherence to a flexible approach that reduces risk in response to extreme valuation and divergent market action, and embraces risk in response to material retreats in valuation that are coupled with early improvements in the uniformity of market action. As I noted last week, my view is that passive, value-insensitive investment strategies are at the beginning of another long winter, while value-conscious, risk-managed, full-cycle investment disciplines are approaching the first day of spring.
- John P. Hussman, Ph.D.,
Time-Stamp of Speculative Euphoria, February 13, 2017</blockquote>
Context<blockquote>
'..simplify the tax code without risking trade chaos, a global recession and possibly a global depression..''..The same combination prevailed at the 1929, 1972, 1987, 2000, and 2007 market peaks..''..deranged central bank policy encouraged continued speculation..'</blockquote>