At its core, a market crash is nothing but risk-aversion meeting a market that's not priced to tolerate risk. We always become concerned about “trap door” outcomes when rich valuations are joined by deterioration in the uniformity of market internals - which is our most reliable gauge of speculation versus risk-aversion among investors. Our concerns about trap door conditions become even more pointed when investor confidence has been destabilized. We are presently on high alert for a poss...| Hussman Funds
In recent years, our most reliable measures of stock market valuation have pushed beyond their 1929 and 2000 peaks, and I’ve described the period since early 2022 as the extended peak of the third great speculative bubble in U.S. history. In my view, that process is now complete. The stock market faces severe downside risk ahead, and the U.S. is constrained in the unsystematic monetary and fiscal expansion that both amplified that bubble and fueled record but wholly impermanent corporate pr...| Hussman Funds
With regard to the record ratio of financial market capitalization to GDP, the government deficits of the past eight years have bloated the corporate profits on which investors are placing extreme price/earnings multiples while calling it 'stock market capitalization.' Meanwhile, the highest income earners have also accumulated the cash and securities that the government issued to finance the deficits. As a result, the massive deficits of recent years are a significant portion of what the dee...| Hussman Funds
It's the wrong question to ask, "How can we somehow force internals to look like trend-following measures that aren't as reliable across history?" Happily, abandoning that question frees us to ask a better question. Once one accepts that internals are, in fact, behaving as intended, the question becomes: "How can we benefit during bearish conditions when valuations and internals validly hold us to a defensive outlook, yet obvious but less reliable trend-following measures remain favorable?" A...| Hussman Funds
The key takeaway is that attending directly to market internals is actually more effective than attending to monetary easing or tightening. Still, given that we can expect a pivot toward lower rates in the near future, how much do valuations tend to increase, on average, in the 3, 6, 12, and 24 months following a Fed pivot? The answer is simple. They don’t.| Hussman Funds
