John Hussman estimates that stocks are now moderately overvalued — unless you're using metrics that assume a permanent market recovery to 2007's record profit margins, which were about 50 percent above the historical norm.
"The S&P 500 is currently priced to deliver total returns over the next decade in the range of 6.5 to 9.0 percent, centered at an expected total return of about 7.8 percent annually," Hussman writes in a recent note to investors.
What we've seen in recent weeks has been a recovery of between 25 to 33 percent of the losses that the market has suffered since its 2007 peak, Hussman notes.
And while that implies a significant gain given the extent of the prior losses, such a rebound isn’t unusual — and treating it as a source of information about the economy is a mistake.
“Until now, ‘less bad than expected’ has been enough for investors,” Hussman points out.
“As a friend of mine quoted last week from a song by The Doors, ‘I've been down for so long, it feels like up to me.’
Liz Ann Sonders, chief investment strategist for the Charles Schwab brokerage firm, says that after seeing the Standard & Poor's 500 index jump to above 940 from around 675 in just 14 weeks, a market that had been undervalued is now "fairly valued."
“The initial move of investors back into the market was based on a value call," Sonders told the Orlando Sentinel.
"You don't have that value call anymore."
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