Time-Stamp of Speculative Euphoria By John P. Hussman, Ph.D.
* February 13, 2017
We know how this works, because we’ve seen it in real-time before. When the market begins to lose several percent of its value by the day (and I believe it will), I suspect that investors will wonder why they were so profoundly eager to chase potential gains that had little chance of being durable or worth the risk, and why they were so profoundly averse to accepting the risk of small losses in defensive positions that could have ultimately prevented or reversed their misfortune.
For our part, we’ll continue to align our outlook with new evidence that arrives at each point in time, particularly relating to valuations and market action. On that front, even recent highs have not reversed the dispersion we observe across market internals, the most obvious being among interest-sensitive sectors. Here and now, our estimated return/risk classifications remain sharply negative, and we observe a preponderance of risk signatures that we associate with steep losses or sharp interim drawdowns on nearly every horizon beyond a few weeks.
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