Tags: Hussman | bear | market | coming

Hussman: Bear Market Looms Despite Flirting With Record

Wednesday, 31 Oct 2012 09:13 AM

By Dan Weil

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The stock market’s recent advance to almost record highs isn’t a sign of good things to come, says John Hussman, president of Hussman Investment Trust.

“[T]he present is a terrible time to accept a significant amount of market risk,” he says in his weekly market commentary.

While it’s impossible to predict where the market is headed over the next week or month, “there is strong precedent for extended market losses and bear markets following overvalued, overbought, overbullish, rising-yield syndromes,” Hussman says.

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

The bearish evidence includes the market’s price-earnings ratio of 18 when using an average of the past 10 years for earnings, he notes.

The rise of the Standard & Poor’s 500 to a four-year high, the breach above its 200-day moving average and a low bearish-bearish sentiment index also suggest a downward correction is coming, Hussman says.

Finally, the recent rise of Treasury yields is a bad sign for stocks. All of the above also prevailed in late-1972, July-August 1987, 2000, and in 2007, ahead of market crashes, Hussman says.

As for the short-term, views are mixed on how stocks will react when the market re-opens Wednesday.

“The short-term risks notwithstanding, the long-run fundamentals of the U.S. economy are stronger than have been fully appreciated,” Mark Hale, chief investment officer at Prytania Investment Advisors, tells Bloomberg.

“In terms of [super-storm Sandy’s] effect on the market, it’s still unclear about the extent of damage.”

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

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