Hussman Weekly Market Comment: The Hook

We are in very familiar – if frustrating – terrain here. While valuations are not as extreme as they were in 2000, the level of investor confidence in “free money” is nearly identical, as is my conviction that this belief in free money will end in tears. Even on the optimistic assumption of 6.3% nominal economic growth for the indefinite future, we estimate a probable 10-year nominal total return on the S&P 500 averaging just 3.6% annually (see Investment, Speculation, Valuation and Tinker Bell for a set of historically accurate models that share that conclusion).  Above, I’ve chosen quotations spanning several months in 2000 to emphasize the drawn-out nature of the 2000 peak – the seeming “resilience” of the market above the 1400 level certainly did not prevent the market from losing half of its value over the following 2-year period, wiping out the entire total return of the S&P 500 – in excess of Treasury bill returns – all the way back to May 1996.