The world's biggest stock bear unloads on the 'stupidity' of Wall Street — and explains why the October meltdown was just a 'drop in the bucket' before the next big crash (2024)
He actually argues the market has been headed for an imminent reckoning since early February, another period that featured a sharp stock drawdown. That was the point when Hussman says so-called market internals started to deteriorate, leaving equities particularly vulnerable.
Hussman has become a big fan of the predictive power of market internals, which he says provide valuable signals on investor sentiment. They've taken on new significance to him since, as he describes it, valuations have been rendered largely useless — at least in the short term.
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"Speculative psychology has always allowed valuations to run well beyond historical norms over portions of the market cycle," Hussman wrote in a recent blog post. "Valuations only 'work' over the long-term and the full cycle."
He continued: "Investor psychology — whether speculative or risk-averse — drives market outcomes over shorter segments of the market cycle. We read that psychology from the behavior of market internals."
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And, as the chart below shows, those internals have faltered since February. The blue line represents the cumulative total S&P 500 return in periods of uniform market internals. As you'll note, the line has flattened recently — just as it did in the periods preceding the 2000 and 2007 stock market collapses.
This chart behavior is one of many factors that have Hussman forecasting an eventual drop of more than 65% for US stocks.
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"Despite its discomfort, the market decline we observed in October is only a drop in the bucket toward normalizing valuations," Hussman said. "Over the completion of the current market cycle, I fully expect the S&P 500 to lose close to two-thirds of its value from the recent peak."
A self-aware approach to market forecasts
As always, the obvious elephant in the room must be addressed when discussing Hussman's outlooks: He's been calling for the equity market to lose two-thirds of its value for months — including well before the February correction. But it hasn't happened yet.
Hussman thinks he knows why. He says the Federal Reserve's decision to lower interest rates to zero completely dismantled the role of valuations in signaling perilous market conditions. With monetary conditions so loose, companies and investors alike blew past warning signs that would've stopped them before.
"Unfortunately, the moment interest rates hit zero, those limits vanished, and preemptively responding to speculative extremes became terrifically detrimental," Hussman said. "We can no longer rely on well-defined limits to speculation, as we could in previous market cycles across history.
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He added: "In hindsight, the fix was simple: abandon the belief in any limit to the stupidity of Wall Street."
It took him a while, but Hussman says he's done this now. He's instead fully focused on the aforementioned market internals and the extent to which they highlight shifts in sentiment.
Hussman even acknowledges that — in the event of a recovery in market internals — he's willing to adopt a neutral stance on the market in the near term.
Even though he's arguably the biggest long-term bear around, everyone has their limits.
But before you dismiss Hussman as a wonky perma-bear, consider his track record, which he breaks down in his latest blog post. Here are the arguments he lays out:
Predicted in March 2000 that tech stocks would plunge 83%, then the tech-heavy Nasdaq 100 index lost an "improbably precise" 83% during a period from 2000 to 2002
Predicted in 2000 that the S&P 500 would likely see negative total returns over the following decade, which it did
Predicted in April 2007 that the S&P 500 could lose 40%, then it lost 55% in the subsequent collapse from 2007 to 2009
In the end, the more evidence Hussman unearths around the stock market's unsustainable conditions, the more worried investors should get. Sure, there may still be returns to be realized in this market cycle, but at what point does the mounting risk of a crash become too unbearable?
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That's a question investors will have to answer themselves. And one that Hussman will clearly keep exploring in the interim.
The 1987 stock market crash, or Black Monday, is known for being the largest single-day percentage decline in U.S. stock market history. On Oct. 19, the Dow fell 22.6 percent, a shocking drop of 508 points. The crash was somewhat of an isolated incident and didn't have anywhere near the impact that the 1929 crash did.
While the crash of 1929 curtailed economic activity, its impact faded within a few months, and by the fall of 1930 economic recovery appeared imminent. Then, problems in another portion of the financial system turned what may have been a short, sharp recession into our nation's longest, deepest depression.
The stock market crash crippled the American economy because not only had individual investors put their money into stocks, so did businesses. When the stock market crashed, businesses lost their money. ... Business houses closed their doors, factories shut down and banks failed.Farm income fell some 50 percent.
Black Thursday, Thursday, October 24, 1929, the first day of the stock market crash of 1929, a catastrophic decline in the stock market of the United States that immediately preceded the worldwide Great Depression. That stock market crash (also called the Great Crash) is still considered the worst one in history.
What Happens to My 401(k) If the Stock Market Crashes? If you are invested in stocks, those holdings will likely see their value fall. But if you have several years until you need your retirement account money, keep contributing, as you may be able to buy many stocks on sale.
Even so, the gains posted by Ambrx Biopharma (AMAM) in Friday's session are unusual and particularly eye-catching. The stock soared to the tune of a hardly believable 1007% after the company announced pleasing results from the mid-stage testing of its breast cancer drug ARX788.
Among the more prominent causes were the period of rampant speculation (those who had bought stocks on margin not only lost the value of their investment, they also owed money to the entities that had granted the loans for the stock purchases), tightening of credit by the Federal Reserve (in August 1929 the discount ...
Several individuals who bet against or “shorted” the market became rich or richer. Percy Rockefeller, William Danforth, and Joseph P.Kennedy made millions shorting stocks at this time. They saw opportunity in what most saw as misfortune.
These five takeaways are: (1) "buy and hold" long term investing does not guarantee gains, (2) paying huge premiums for growth can be risky, (3) the next crash may come unexpectedly, (4) a crash may come even if corporate profits are rising, and (5) reaching the bottom may take much longer than most experts think.
Around $14 billion of stock value was lost, wiping out thousands of investors. The panic selling reached its peak with some stocks having no buyers at any price. The Dow lost an additional 30.57 points, or 11.73%, for a total drop of 68.90 points, or 23.05% in two days.
Simply put, the stock market crash of 1929 caused the Great Depression because everyone lost money. Investors and businesses both put significant amounts of money into the market, and when it crashed, tremendous amounts of money were lost. Businesses closed and people lost their savings.
On Black Tuesday, October 29, stock holders traded over sixteen million shares and lost over $14 billion in wealth in a single day. To put this in context, a trading day of three million shares was considered a busy day on the stock market. People unloaded their stock as quickly as they could, never minding the loss.
Many investors—both institutional and individual—had borrowed or leveraged heavily to buy stocks, and the crash that began on Black Thursday wiped them out financially, leading to widespread bank failures. That, in turn, became the catalyst that sent the United States into the Great Depression of the 1930s.
The worst stock market crash happened in 1929. It produced the largest decline from top to bottom (89%) and was a catalyst for the Great Depression. On a percentage basis, the worst day in stock market history was on October 19, 1987.The S&P 500 plunged 20.5% while the Dow cratered 22.6%.
The crash lasted until 1932, resulting in the Great Depression, a time in which stocks lost nearly 90% of their value. The Dow didn't fully recover until November 1954.
The fastest market crash in history came on Oct.19, 1987. The S&P 500 and Dow Jones Industrial Average each plunged more than 20% in a single day, the biggest single-day percentage decline in history.
It's the maximum allowable increase or decrease in a company's stock price. The price range for equities might range from 2% to 20%. The stock exchange determines this range after reviewing the share's past price behaviour. The daily price range also considers the previous day's closing price.
Introduction: My name is Francesca Jacobs Ret, I am a innocent, super, beautiful, charming, lucky, gentle, clever person who loves writing and wants to share my knowledge and understanding with you.
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