Analyse fra Hussman – læs hele analysen her
the S&P 500 is more than double its historical valuation norms onreliable measures (with about 90% correlation with actual subsequent 10-year market returns), sentiment is lopsided, and we observe dispersion across market internals, along with widening credit spreads. These and similar considerations present a coherent pattern that has been informative in market cycles across a century of history – including the period since 2009. None of those considerations inform us that the U.S. stock market currently presents a desirable opportunity to accept risk.
Hard-won lessons
If market internals and credit spreads improve, our immediate concerns will become less pointed, but it won’t make stocks any cheaper, so various safety nets will still be essential to guard against fresh deterioration. For now, our concerns about market risk are as severe as they were at the 2000 and 2007 peaks, and these concerns are equally dismissed and reviled, which is oddly encouraging.
Some have marveled that we can be so faithful to our investment discipline despite having been incorrect about the persistence of this speculative advance in recent years. Understand this: I know exactly what went wrong in 2009-2010 – missing returns in the interim of a necessary but unfortunately-timed decision to stress-test our approach against Depression-era data; I know exactly the challenge that Fed-induced yield-seeking has posed to our discipline in recent years – and how we’ve addressed it by overlaying our ensemble approach with criteria related to factors such as credit spreads and trend uniformity.
Equally important, I know exactly the conditions under which our approach has repeatedly been accurate in cycles across a century of history, and in three decades of real-time work in finance: I know what led me to encourage a leveraged-long position in the early 1990’s, and why were right about the 2000-2002 collapse, and why we were right to become constructive in 2003, and why we were right about yield-seeking behavior causing a housing bubble, and why we were right about the 2007-2009 collapse. And we know that the valuation methods that scream that the S&P 500 is priced at more than double reliable norms, and that warn of zero or negative S&P 500 total returns for the next 8-9 years, are the same valuation methods that indicated stocks as undervalued in 2008-2009 (as I’ve noted before, my stress-testing concern at the time was that similar estimates, while ultimately accurate in the Depression-era, were still followed by a loss of two-thirds of the stock market’s value to its final low in 1932).
The equity market is now more overvalued than at any point in history outside of the 2000 peak, and on the measures that we find best correlated with actual subsequent total returns, is 115% above reliable historical norms and only 15% below the 2000 extreme. Unless QE will persist forever, even 3-4 more years of zero short-term interest rates don’t “justify” more than a 12-16% elevation above historical norms. That increment can be calculated using any discounted cash flow method. Based on valuation metrics that are about 90% correlated with actual subsequent returns across history, we estimate that the S&P 500 is likely to experience zero or negative total returns for the next 8-9 years. At this point, the suppressed Treasury bill yields engineered by the Federal Reserve are likely tooutperform stocks over that horizon, with no downside risk. The only thing that keeps this from being obvious is the proclivity of Wall Street analysts to form opinions and quote indicators without actually testing whether their methods have any reliability at all in evidence from market cycles across history. Numerous popular metrics, including the “Fed Model” and price-to-forward-earnings as a measure of value, have a very weak relationship to market returns over the following quarters or years.
As was true at the 2000 and 2007 extremes, Wall Street is quite measurably out of its mind. There’s clear evidence that valuations have little short-term impactprovided that risk-aversion is in retreat (which can be read out of market internals and credit spreads, which are now going the wrong way). There’s no evidence, however, that the historical relationship between valuations and longer-term returns has weakened at all. Yet somehow the awful completion of this cycle will be just as surprising as it was the last two times around – not to mention every other time in history that reliable valuation measures were similarly extreme. Honestly, you’ve all gone mad.
