Money and Finance
- Hussman Weekly Market Comment: The Outlook Will Shift As Conditions Shift
Our investment outlook will shift as market conditions shift, and we will lean toward a more constructive stance when conditions support it. There are straightforward ways to do that while still remaining careful about larger cyclical risks. Present conditions...
- Hussman Weekly Market Comment: Not In Kansas Anymore
Even in the event that quantitative easing is sufficient to override hostile market conditions in the near-term, it is worth noting that long-term outcomes are likely to be unaffected. We presently estimate a prospective 10-year total return on the S&P...
- Hussman Weekly Market Comment: Roach Motel Monetary Policy
Strong leading indicators such as the CFNAI and the Philly Fed Index have been weak for many months, and the deterioration in new orders has moved from a slowing of growth to outright contraction in recent months. In the order of events, a slowing in...
- Hussman Weekly Market Comment: Secular Bear Markets - Volatility Without Return
Present market and economic conditions highlight a fairly dramatic disparity between continued economic and valuation headwinds (particularly on a “cyclical” horizon of 18-24 months) and complacent short-term conditions that rest on the continuation...
- Hussman Weekly Market Comment: Not Yet Out Of The Woods
Given the data in hand, it's clear that past growth downturns of the same extent have often gone on to become recessions. However, there are a few exceptions where these growth rates dipped below zero and then recovered. If we had good reason to expect...
Money and Finance
Hussman Weekly Market Comment: Following the Fed to 50% Flops
One of the most strongly held beliefs of investors here is the notion that it is inappropriate to “Fight the Fed” – reflecting the view that Federal Reserve easing is sufficient to keep stocks not only elevated, but rising. What’s baffling about this is that the last two 50% market declines – both the 2001-2002 plunge and the 2008-2009 plunge – occurred in environments of aggressive, persistent Federal Reserve easing.
It’s certainly true that favorable monetary conditions are helpful for stocks, on average. But that average hides a lot of sins.
There are many ways to define monetary conditions using policy rates, market yields, and variables such as the monetary base or other aggregates. But given the strong relationship between monetary base/GDP and interest rates, these measures overlap quite a bit, and the results are quite general regardless of the precise definition. For discussion purposes, we’ll define “favorable” monetary conditions here as: either the Federal Funds rate, the Discount Rate, or the 3-month Treasury bill yield lower than 6 months prior, or the last move in the Fed Funds or Discount Rate being an easing. Historically, this captures about 52% of historical periods. During these periods, the total return of the S&P 500 averaged 13.5% annually, versus just 8.8% annually when monetary conditions were not favorable.
This is a worthwhile distinction, but it doesn’t partition the data enough to separate out periods where the average return on the S&P 500 was below Treasury bills. So historically, using this indicator alone would have suggested holding stocks regardless of monetary conditions. One might expect to do better by taking a leveraged exposure during favorable monetary conditions, and a muted exposure during unfavorable conditions, but this strategy would have invited intolerable risks. Strikingly, the maximum drawdown of the S&P 500, confined to periods of favorable monetary conditions since 1940, would have been a 55% loss. This compares with a 33% loss during unfavorable monetary conditions. This is worth repeating – favorable monetary conditions were associated with far deeper drawdowns.
- Hussman Weekly Market Comment: The Outlook Will Shift As Conditions Shift
Our investment outlook will shift as market conditions shift, and we will lean toward a more constructive stance when conditions support it. There are straightforward ways to do that while still remaining careful about larger cyclical risks. Present conditions...
- Hussman Weekly Market Comment: Not In Kansas Anymore
Even in the event that quantitative easing is sufficient to override hostile market conditions in the near-term, it is worth noting that long-term outcomes are likely to be unaffected. We presently estimate a prospective 10-year total return on the S&P...
- Hussman Weekly Market Comment: Roach Motel Monetary Policy
Strong leading indicators such as the CFNAI and the Philly Fed Index have been weak for many months, and the deterioration in new orders has moved from a slowing of growth to outright contraction in recent months. In the order of events, a slowing in...
- Hussman Weekly Market Comment: Secular Bear Markets - Volatility Without Return
Present market and economic conditions highlight a fairly dramatic disparity between continued economic and valuation headwinds (particularly on a “cyclical” horizon of 18-24 months) and complacent short-term conditions that rest on the continuation...
- Hussman Weekly Market Comment: Not Yet Out Of The Woods
Given the data in hand, it's clear that past growth downturns of the same extent have often gone on to become recessions. However, there are a few exceptions where these growth rates dipped below zero and then recovered. If we had good reason to expect...