John Hussman market comment, always an interesting read. "You...

John Hussman market comment, always an interesting read.

"You know it’s a bubble when you have to edit the Y axis on all of your charts because valuations have broken above every historical peak, and estimated future market returns have fallen beyond the lowest points in history, including 1929.

Presently, one of the striking aspects of market behavior is the lack of confirmation that has accompanied recent market highs. While the S&P 500 and the Nasdaq Composite have pushed to record highs, neither the broad NYSE Composite, small-cap Russell 2000, Dow Industrials, Dow Utilities, or Value Line indices have breached their February peaks. Likewise, daily market action has increasingly featured divergences, with more declining stocks than advancing stocks even on days when the S&P 500 moves higher, with increasing implied volatility in stock index options even on market advances. Likewise, nearly half of all U.S. stocks remain below their respective 200-day moving averages.

Meanwhile, we’re observing extremely lopsided bullishness, with Investors Intelligence reporting 60% bulls and just 16.2% bears among investment advisors – the widest spread since the January 2018 pre-correction peak. The National Association of Investment Managers reports that the average exposure of its members is presently 106.6%. While the most bearish exposure reported by NAAIM members is typically a short position with an average value of about -80%, the most bearish position currently reported among NAIAIM members is a 50% long position. Again, the only time we’ve observed similar bullishness was at the January 2018 pre-market peak.

In this context, it’s worth observing that the trajectory of the S&P 500 since January 2018 has taken the form of a huge “megaphone,” punctuated by multiple corrections that have regularly wiped out the market’s interim progress, as we saw in late-2018, May 2019, August 2019, and again early this year. Between January 26, 2018 and April 21, 2020, the total return of the S&P 500 index was negative. In my view, it’s primarily the blind faith of investors in a “Fed backstop” in recent months that has enabled an extension of market valuations to the most extreme levels ever observed in history.

In the options market, the 5-day equity put/call ratio on the Chicago Board Options Exchange has dropped to just 0.406, the lowest level in nearly 20 years, last seen briefly in January 2001, during the first bear market rally of the 2000-2002 market collapse. The lack of investor interest in put options reflects extreme confidence that the Fed has already given them a “put” in the form of a monetary “backstop.” The closest the put/call has come to this level in recent years was on April 15, 2010, immediately before a 16% correction. Extreme bullishness can and often does coincide with ragged internals, and the combination is often quite unfavorable, because it’s a sign that “surface” speculation rests on a weak foundation.

In recent weeks, we’ve also begun to observe various syndromes of conditions that we monitor in daily data, which have historically been vulnerable to abrupt “air pockets” or sustained declines."

And so on and so forth https://www.hussmanfunds.com/comment/mc200901/