zerohedge.com / Excerpted from John Hussman’s Weekly Market Comment on 11/17/2014 14:34
The current market environment joins the full range of ingredients that have characterized the most extreme market peaks – and preceded the deepest market plunges – in more than a century of history. On the basis of measures that are best correlated with actual subsequent market returns (and plenty of popular measures are not), we observe the richest market valuations in history with the exception of the 2000 peak. Even then, current levels on the best performing measures are only about 15-20% below the 2000 extreme. Current valuations now exceed those observed in 1901, 1929, 1937, 1972, 1987, and 2007. The 5-year market advance from the 2009 low, encouraged by yield-seeking speculation, now places the S&P 500 at more than double the level that we would associate with historically normal returns. Put another way, we presently estimate S&P 500 prospective nominal total returns of just 1.4% annually over the coming decade, with zero or negative average total returns out to roughly 2022. These valuations are coupled with extremely overbought conditions and the most lopsided bullish sentiment since 1987. Bearish sentiment is now down to 14.8% (Investor’s Intelligence), close to the low of 13.3% reached in September. Prior to this year, the last two times we’ve seen such lopsided sentiment were the April 2011 peak (just before a near-20% dive), and the October 2007 peak.
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