Richard Drew/AP
A Wall Street veteran recently hailed a generational buying opportunity for US stock investors – but John Hussman, a longtime strategist and financial historian known for his pessimistic predictions, disagrees.
Richard Bernstein, the CEO and chief investor of Richard Bernstein Advisors, suggested in a note last week that there's a "once-in-a-generation investment opportunity in virtually anything other than those 7 stocks." He was referring to the "Magnificent Seven" – Amazon, Alphabet, Apple, Microsoft, Tesla, Meta, and Nvidia.
The former chief investment strategist at Merrill Lynch pointed to the US economy's resilient growth despite the pressures of inflation and higher interest rates, and said he doesn't expect a downturn or recession.
While a handful of mega-cap technology stocks such as Tesla and Nvidia are trading at heady levels in his view, Bernstein expects the wider stock market to climb as valuations are fairer, there's an economic tailwind, and he believes corporate profits are accelerating and will surge next year.
Hussman, the head of Hussman Investment Trust, disagreed firmly when an X user asked for his reaction to Bernstein's call.
"Here's a century of data that might help to identify a generational opportunity," he posted on X Sunday. "It's not on the buy side."
"'Show your work' doesn't just apply to math tests," he added.
Hussman attached a chart comparing estimated and actual 12-year total returns from the S&P 500 in excess of Treasury bonds between 1928 and 2023. He singled out the latest datapoint, November 3, and his estimate that the index will underperform Treasuries by 7.4% over the next 12 years.
—John P. Hussman, Ph.D. (@hussmanjp) November 5, 2023
Hussman offered more context for his grim forecast in his latest research note. He included a chart showing his preferred valuation metric, the ratio of nonfinancial market capitalization to nonfinancial corporate gross value-added (a measure of stock valuations relative to productivity), has a strong negative correlation with S&P 500 returns over time.
"Current market valuations, even after the retreat since the beginning of 2022, rival the 1929 and 2000 bubble peaks," he wrote, adding that they "stand at one of the three great bubble extremes in US history."
"The problem is that the expansion in multiples was so extreme in the advancing phase of this bubble that likely 10-12 year S&P 500 total returns, by our estimates, are now negative," he added.
While Bernstein expects a strong economy to boost stocks, Hussman noted that underlying GDP growth, which takes into account growth in the labor force and productivity, has slowed from over 4% a year to below 2% today. The pair seem to disagree on the outlook for equities over the next 12 years at least, given Bernstein sees a generational buying opportunity, whereas Hussman anticipates a decade of stock-market underperformance.
For the uninitiated, Hussman has repeatedly made headlines by predicting a stock-market decline exceeding 60% and forecasting a full decade of negative equity returns. And as the stock market continued to grind mostly higher, he has persisted with his doomsday calls.
