Loading ...A Striking Collection of Duck-Like Features
John P. Hussman, Ph.D.
President, Hussman Investment Trust
November 2019
When I see a bird that walks like a duck and swims like a duck and quacks like a duck, I call that bird a duck.
– James Whitcomb Riley
Current conditions
At present, our measures of valuations are breathtakingly extreme, and our measures of market internals are negative and divergent. Yet despite these market extremes, we always have to allow for the possibility that investors will take the speculative bit back in their teeth. An improvement in the uniformity market internals wouldn’t avoid the negative total returns that we project for the S&P 500 over the coming 10-12 years, nor would it reduce the 50-65% downside risk that I continue to view as likely over the completion of this market cycle, but it would defer our immediate near-term downside expectations for the market.
Here and now, we observe a combination of market conditions that has historically been permissive of “trap door” market losses. I use the word “permissive” because market losses are not a certainty. Rather, when we examine points of extreme market risk across history, they share many of the features we observe today.
Put it this way. If a high-risk market peak were a duck, observable market conditions presently include a striking collection of duck-like features, including unfavorable market internals on our measures, extremes in valuations, sentiment and price behavior, along with deteriorating leadership (e.g. new highs vs new lows), credit (e.g. corporate debt, high-yield bonds, leveraged loans), breadth (e.g. advancing vs. declining issues), and participation (e.g. the percentage of stocks in defined uptrends). In hindsight, these spikes in duck-like conditions have often proved to be market tops.