Hussman Weekly Market Comment: Hard-Negative
With the exception of extreme market conditions (see Warning- Examine All Risk Exposures , and Extreme Conditions and Typical Outcomes ), I try not to wave my arms around about near-term market risks, but I think it's important to cut straight to the chase here. The present market environment warrants unusual concern, in my view. Based on a wide variety of evidence and its typical market implications over an ensemble of dozens of subsets of historical data, the expected return/risk profile of the stock market has shifted to hard-negative. This places us in a tightly defensive position. This isn't really a forecast in the sense that shifts in the evidence even over a period of a few weeks could move us to adjust our investment stance, but here and now we observe conditions that have often produced abrupt crash-like plunges. This combination of evidence includes elevated valuations, overbullish sentiment, market internals best characterized as a "whipsaw trap" on the basis of typical follow-through, heightened credit strains, and clear evidence (on reliable forward-looking indicators) of oncoming recession, among other factors.
As always, we try to align our investment positions with the evidence we observe. If the evidence softens, our hedges will soften. While the quickest route to a modest exposure to market fluctuations (perhaps 20-30%) would be a clear improvement in market internals - which could justify a less defensive stance even in the face of recession risks and rich valuations - the most likely route to a significant investment exposure would be a decline to much lower prices and correspondingly higher prospective returns. Presently, avoidance of major market losses takes precedence in our analysis.
- Hussman Weekly Market Comment: Aligning Market Exposure With The Expected Return/risk Profile
Some risks and market conditions are more rewarding than others. My objectives for this week’s comment are very specific. First, to demonstrate – using a very simple model – that investment returns do indeed vary systematically with market conditions....
- 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: Low-water Mark
As of Friday, our estimates of prospective return/risk for the S&P 500 have dropped to the single lowest point we’ve observed in a century of data. There is no way to view this as something other than a warning, but it’s also a warning that I...
- Hussman Weekly Market Comment: Dwelling In Uncertainty
As of last week, the combination of evidence we observe continues to be associated with strong recession risk and the likelihood of a "whipsaw trap" in the stock market. We'll respond to new data as it changes, but I expect that the primary window...
- Hussman Weekly Market Comment: Clarity And Valuation
So overvalued, check. Overbought, check. Overbullish, check. Upward pressure on yields, check. Market internals? – certainly mixed, but not bad – and there's the wild card. Historically, markets featuring a combination of these other risks have...