Just How Overvalued Is the SP 500?

John Hussman is a stock market analyst and mutual fund manager. He’s also a former professor of economics and international finance at the University of Michigan. Highly valued for his weekly market analysis, Hussman is regularly quoted on many high-traffic market news sites and business news networks.


On a recent Chris Martenson’s Peak Prosperity podcast, Hussman articulately explains (10:22) how the S&P 500 is overpriced… by 100% (basically, what it would take to revert back to the mean).

Hussman’s perspective is over the long term, and for some professional traders his analysis might be shrug worthy. But for regular investors—middle-class investors who rely on mutual funds or invest in stocks for the long haul—his conclusions are depressing to say the least.

As Hussmann states, “So right now we have got stocks valued at a point where we estimate the 10-year prospective returns on the S&P 500 will be about 1.6–1.7% annualized. We are talking right now with the S&P 500 at 2,032 as of today’s close.”

Now if you’re an American whose main experience with saving money is simply putting/keeping it in the bank, then you’re used to getting under 1% interest on your cash. And so 1.6–1.7% probably looks like free money. But if you’re a foreign or expat investor, then you may want to think local and/or think twice about any U.S.-centric mutual funds.

Granted, Hussman is just a man. He’s no seer—no analyst is—and just like any analyst he gets it wrong sometimes or his timing is off. However, there is certainly no denying that the United States has an issue (issues?) especially in regard to current debt levels, inequality, and sustainability… all of which could seriously hamper any long-term growth prospects.

These issues were of course brought on by the U.S. Federal Reserve—who just couldn’t (or wouldn’t) allow the market to work many of these issues out a decade or so ago. They had to ease, twist, and print, for fear and for folly. As a result, the future prosperity of every American under the age of 50—and without sounding too alarmist, perhaps even the world—has been seriously put in jeopardy.

Printing fiat money is not a cure, it’s the disease. And the world hasn’t even begun to feel the pain brought on by these central bankers. Wait until it’s time to raise interest rates.

  • Reed

    Analysts get it right often when they don’t get it wrong.

  • js

    Nice one, Mike!