A long-time market bear who called the 2000 and 2008 crashes warns the S&P 500 could plummet 64%, bursting a historic bubble

• Asset-bubble expert John Hussman has issued another dire warning: the S&P 500 could crash 64% from current levels.
• The famously bearish investor said extreme equity valuations and "unfavourable market internals" will trigger the slide.

John Hussman is doubling down on his dire outlook for US stocks, even after the market defied recession predictions to notch some impressive gains this year.

Stretched equity valuations suggest that the S&P 500 index would be required to plunge of as much as 64% for the market to return to more balanced conditions, according to the asset-bubble expert who successfully predicted the stock routs of 2000 and 2008.

"The present combination of historically rich valuations, unfavorable internals, and extreme overextension places our market return/risk estimates – near term, intermediate, full-cycle, and even 10-12 year, at the most negative extremes we define," Hussman, president of the Hussman Investment Trust, wrote in a note. "Yes, this is a bubble in my view. Yes, I believe it will end in tears."

The S&P 500 has rallied almost 19% so far this year, taking its gains since the end of 2008 – the year of the global financial crisis – to more than 400%. The price-earnings ratio of the index, one of the valuation metrics tracked by investors, has climbed about 26 from last year's lows near 19, according to data from macrotrends.net.

'64% loss would be required'

"At present, the valuation extremes we observe imply that a -64% loss in the S&P 500 would be required to restore run-of-the-mill long term prospective returns," he added.

Valuations refer to investors' estimates of how expensive stocks are, in relation to various yardsticks such as the earnings or the sales of the companies in focus. Higher valuations would suggest less room for stock prices to rise, meaning returns could be relatively low.

US stocks have enjoyed a strong run so far this year, despite widespread predictions for a recession resulting from the Federal Reserve's aggressive interest-rate increases. Tech stocks in particular have seen a massive rally – led by the likes of Nvidia, Apple and Tesla – thanks an explosion of investor interest in artificial intelligence.

Hussman has previously voiced that stock market price action is a product of valuations and broader market sentiment – but both are unfavourable under current conditions.

"Despite enthusiasm about the market rebound since October, I remain convinced that this initial market loss will prove to be a small opening act in the collapse of the most extreme yield-seeking speculative bubble in U.S. history," Hussman said.