Fund manager John Hussman is as bearish as ever.
Although he admits that timing the market is difficult, he suggests, strongly, that now is one of the worst times in history to buy stocks:
We presently identify market conditions as being in the most negative 1% of historical data based on the average expected return/risk characteristics associated with similar conditions, on a wide range of horizons ranging from 2 weeks to 18 months.
One of these troubling “market conditions” is valuation. Stocks are still very expensive when measured against normal profit margins.
(To argue that stocks are reasonably priced, or even cheap, you have to believe that today’s near-record-high profit margins will persist indefinitely. If they do, it will be the first time in history that this has happened.)
Valuation is not a good predictor of what stocks are going to do next, but it is an excellent predictor of long-term future returns. Based on today’s valuations, Hussman calculates that the expected 10-year total return of the S&P 500 is 4.4% (nominal).
That’s a lot better than the expected return on 10-year bonds, which are currently paying about 3%. And it’s better than the market’s expected return was in 2000. But it’s a lot less than the 10% that most stock-market investors expect. And it’s also less than at pretty much any time in history before the 1990s stock-market bubble began.
PROJECTED S&P 500 TOTAL RETURN (blue line) vs. ACTUAL RETURN (red line):
Photo: John Hussman, Hussman Funds