The Economy, the Stock Market and the Fed

by Pater Tenebrarum
Acting Man

John Hussman on Recent Developments

We always look forward to John Hussman’s weekly missive on the markets. Some people say that he is a “permabear”, but we don’t think that is a fair characterization. He is rightly wary of the stock market’s historically extremely high valuation and the loose monetary policy driving the surge in asset prices.

[…] As he reminds his readers in this week’s market comment, he altered his short term outlook on the stock market when the improvement in market internals shown in the chart above asserted itself after the February 2016 low. Not only the a/d line, but a whole host of market internals improved. The advance after the February low was broad-based and the trend in internals went counter to the negative technical evidence that had accumulated earlier.

This does of course not change the probability that the market will deliver very poor long term returns based on current valuations. This week Hussman warns that several of the trend-following components of market internals he focuses on have begun to deteriorate. We don’t know which combination of indicators precisely he is looking at, but a number of internals have indeed begun to diverge negatively from prices lately.

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