HUSSMAN: The Current Syndrome Of Market Conditions Has A Long History Of Being Hostile For Stocks
However, fund manager John Hussman warns that the current market conditions have a history of being unfriendly to stocks.
From his latest Weekly Market Comment:
Last week, the S&P 500 came within 1% of reprising a syndrome that we’ve characterized as a Who’s Who of Awful Times to Invest, featuring a Shiller P/E over 18 (S&P 500 divided by the 10-year average of inflation-adjusted earnings), the S&P 500 more than 50% above its 4-year low and 8% above its 52-week smoothing, investment advisory bulls (Investors Intelligence) over 47% with bears below 27%, and Treasury bond yields higher than 6 months earlier. This combination is one of numerous and nearly equivalent ways of defining an “overvalued, overbought, overbullish, rising-yields” syndrome. While there are certainly numerous conditions that are informative about stock market returns, and capture a much broader set of negative market outcomes, I don’t know of any other syndrome of market conditions – however defined – that has been so consistently hostile for stocks over the past century.
Hussman lists 11 other periods when the markets exhibited similar characteristics to the markets today:
December 1972 - January 1973 (followed by a 48% collapse over the next 21 months) August - September 1987 (followed by a 34% plunge over the following 3 months) July 1998 (followed abruptly by an 18% loss over the following 3 months, and at the beginning of a nearly 14-year period where the S&P 500, including dividends, has underperformed Treasury bills, with the S&P 500 nearly 30% lower four years later) July 1999 (followed by a 12% market loss over the next 3 months, and a series of whipsaw recoveries and losses, with the S&P 500 over 40% lower three years later) January 2000 (followed by a spike 10% loss over the next 6 weeks, a series of whipsaw recoveries and losses, and finally a bear market that took the S&P 500 over 45% below its Jan 2000 level by late 2002) March 2000 (followed by a spike loss of 12% over 3 weeks, and a 49% loss into 2002) July 2007 (followed by a 57% market plunge over the following 21 months) January 2010 (followed by a 7% "air pocket" loss over the next 4 weeks, with a recovery into April and then a renewed decline, leaving the S&P 500 about 11% lower by July) April 2010 (followed by a 17% market loss over the following 3 months) December 2010 (near the start of QE2, and followed by a 10% further advance in the S&P 500 into May 2011, when an additional syndrome emerged that was also observed last week – see Extreme Conditions and Typical Outcomes – whereupon an 18% market plunge wiped out the entire gain, and then some). March 2012 (followed by a further advance of about 3% over the following 3 weeks, and then a quick if unmemorable market decline of nearly 10%). Read more at HussmanFunds.com.