Too many investors are huddled in the S&P 500 – and that's going to make any bouts of volatility even worse as traders move to sell en masse when trouble hits, according to Bank of America's top stock strategist"The problem is everyone is using muscle memory to go back into what they think of as the safest equity market, which is the S&P 500.
Stocks in the S&P 500 are still overvalued despite the steep sell-off of last year, according to market veteran John Hussman, who warned that the index could see negative returns over the next decade. Hussman, who called the burst the dot-com bubble in 2000, noted that his favorite valuation measure in the S&P 500 was at a similar level to where it was at the peak of the dot-com era. That indicator has the best track record out of any measure to predicting long-run returns for the stock index, Hussman warned, who thinks the S&P 500 still has more room to fall.
"Notice how little impact the 2022 market decline to-date has had on valuations," he said."Though recent market losses have removed the most extreme speculative froth, our most reliable valuation measures remain near their 1929 and 2000 extremes." He warned that the S&P 500 could fall another 60% on a"very long, interesting trip to nowhere," which would bring the index close to 1,500. He estimated the S&P 500 would see an average return of -6% over the next 10-12 years.
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