A notorious market bear who called the 2000 and 2008 crashes shares 3 signs it's a terrible time to invest in the S&P 500 — and warns stocks are due to underperform Treasurys by 10% over the next 12 years

• John Hussman warns of mediocre S&P 500 returns complete nan adjacent 12 years.
• High valuations propose imaginable underperformance against Treasurys.
• Hussman's past predictions see meticulous forecasts of nan 2000 and 2008 crashes.

Before investing successful nan banal market, John Hussman urges investors to support successful mind that return outcomes yet person different probabilities based connected erstwhile you bargain in.

While nan S&P 500 has averaged 10.5% yearly returns since 1957, that doesn't mean those are nan mean returns you'll get nary matter erstwhile you participate nan market.

"This is for illustration stepping into a location pinch 2 rooms, 1 pinch nan somesthesia astatine 0 degrees and 1 astatine 140 degrees, and expecting a somesthesia of 70 either way," said Hussman, nan president of nan Hussman Investment Trust who called nan 2000 and 2008 crashes, successful an October 17 note.

Case successful point, if you bought successful connected February 14, 2020, you'd beryllium up 71%. But if you bought successful conscionable complete a period later, astatine nan bottommost of nan pandemic-driven clang connected March 20, you'd beryllium up 152% correct now. They're some awesome outcomes, nary doubt. But they're very different. And successful business cycles wherever monetary and fiscal stimulus aren't arsenic robust, nan marketplace tin return a overmuch longer clip to recover.

Right now, a fewer different variables show that investors should expect mediocre outcomes complete nan adjacent 12 years if they were to put successful nan S&P 500 today, Hussman said.

First, location are valuation levels. Hussman's go-to measurement is nan marketplace headdress of non-financial stocks divided by those stocks' full gross worth added. The metric is astatine all-time highs, surpassing nan largest bubble peaks successful history.

Hussman likes it truthful overmuch because it's been a reasonably bully predictor of 12-year marketplace returns comparative to 10-year Treasury returns. Here's nan narration betwixt expectations and existent marketplace returns. Current expectations person nan S&P 500 underperforming Treasurys by 9.9% annually complete nan adjacent 12 years.

Then there's investor sentiment, which Hussman measures done nan uniformity of activity successful thousands of securities. In nan floor plan below, erstwhile nan measurement goes level for illustration successful 2000 and 2008, it's historically been bad for stocks.

Finally, there's nan accumulation of informing signs of marketplace over-extension that rivals anterior awesome downturn periods. The individual informing signs that Hussman monitors are various method indicators, for illustration nan S&P 500 being wrong 2% of its 5-year precocious while little than 72% of stocks are beneath their 200-day moving averages and 2.5% of stocks deed caller some 52-week highs and lows astatine nan aforesaid time, among different conflicting signals.

Hussman's way grounds — and his views successful context

Hussman's outlook is often seen arsenic extreme, and possibly reasonably so. But valuations are causing skepticism astir early marketplace returns among others connected Wall Street, moreover if not to nan aforesaid degree.

Earlier this week, Goldman Sachs forecast that nan S&P 500 would mean 3% yearly returns complete nan adjacent decade. That's little than nan 4.2% yearly output that risk-free 10-year Treasurys offer.

It's besides worthy remembering that Hussman's outlook is only for a 12-year play if you were to bargain successful now — not if you scheme to clasp for aggregate decades.

For nan uninitiated, Hussman has many times made headlines by predicting a stock-market decline exceeding 60% and forecasting a afloat decade of negative equity returns. And arsenic nan banal marketplace crushed mostly higher, he persisted pinch his last day calls.

But earlier you disregard Hussman arsenic a wonky perma-bear, see again his way record. Here are nan arguments he's laid out:

• He predicted successful March 2000 that tech stocks would plunge 83%, and past nan tech-heavy Nasdaq 100 scale mislaid an "improbably precise" 83% during a play from 2000 to 2002.
• He predicted successful 2000 that nan S&P 500 would astir apt spot antagonistic full returns complete nan pursuing decade, which it did.
• He predicted successful April 2007 that nan S&P 500 could suffer 40%, past it mislaid 55% successful nan consequent illness from 2007 to 2009.

Hussman's caller returns, however, person been little than stellar. His Strategic Growth Fund is down astir 55% since December 2010 and has fallen 16% successful nan past 12 months. The S&P 500, by comparison, is up astir 39% complete nan past year.

The magnitude of bearish grounds being unearthed by Hussman continues to mount, and his calls complete nan past mates of years for a important sell-off began to beryllium meticulous successful 2022. Yes, location whitethorn still beryllium returns to beryllium realized successful this caller bull market, but astatine what constituent does nan mounting consequence of a larger clang go excessively unbearable?

That's a mobility investors will person to reply themselves — and 1 that Hussman will support exploring successful nan interim.