The S&P 500 may just plunge up to 70% this cycle as markets hit a ‘motherlode’ of FOMO extremes, famed fund supervisor says

• Legendary investor John Hussman says the latest stock rally is rooted in the extreme fear of missing out.

• FOMO factors have surged in markets, and stock prices could fall 50%-70% this cycle.

• His firm’s most reliable indicator now exceeds 1929 extremes.

All-time highs in the stock market give the impression of a runaway rally, but it’s a bull run that will eventually come crashing down, John Hussman said in a new note.

The legendary bear, famed for predicting the 2000 and 2008 crashes, reiterated that equities could drop as much as 70% this cycle. It’s a long-held take that may seem out of place amid the market’s momentum, as the S&P 500 continues to breach record highs in 2024.

But to the Hussman Investment Trust president, the extreme runup is driven by investor impatience and a fear of missing out — key ingredients for a coming correction.

“There are certain features of valuation, investor psychology, and price behavior that tend to emerge when the fear of missing out becomes particularly extreme and the focus of speculation becomes particularly narrow. Last Friday, we hit a fresh ‘motherlode’ of these conditions,” he wrote on Tuesday.

He said a combination of red-flag factors include overextended valuations, divergence among individual stock sectors, and lopsided sentiment. Another point of caution is the growing group of stocks hitting fresh 52-week lows, even as indexes themselves skyrocket.

“I continue to view the market advance of recent months as an attempt to ‘grasp the suds of yesterday’s bubble’ rather than a new, durable bull market advance,” he said. “I also believe that the S&P 500 could lose something on the order of 50-70% over the completion of this cycle, simply to bring long-term expected returns to run-of-the-mill norms that investors associate with stocks.”

Hussman is one of the most bearish forecasters on Wall Street, and has for months repeated his view that stocks could fall more than 60%.

Most strategists at major Wall Street banks, meanwhile, generally see the S&P staying above 5,000 through 2024.

This is in part because the macroeconomic outlook has brightened compared to the first half of 2023, when a recession was the base case for most economists.

Hussman has made headlines by predicting a massive stock-market decline and forecasting a full decade of negative equity returns, and as the stock market has kept grinding higher, he’s persisted with his calls for a painful correction on the horizon.

In Tuesday’s note, he also noted that his firm’s most reliable measure — the ratio of nonfinancial market capitalization to corporate gross value-added —  now exceeds the 1929 extremes, when the Dow plunged 89% peak-to-trough.

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“Even the more conventional (but less reliable) S&P 500 price/forward operating earnings multiple is at levels that have no rivals except surrounding the 2000 and 2022 peaks,” Hussman said. “Put simply, my impression is that the period since early-2022 comprises the extended peak of one of the three great speculative bubbles in U.S. history.”

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