Famous fund manager believes S&P 500 might drop 70% this cycle due to'motherlode' FOMO.

The latest stock boom is driven by tremendous dread of missing out, argues legendary investor John Hussman. FOMO has risen, and stock values could tumble 50%-70% this cycle. His firm's best indicator exceeds 1929 levels.  

In a recent note, John Hussman warned that stock market all-time highs look like a runaway surge, but they'll eventually end. The legendary bear, who predicted the 2000 and 2008 crashes, predicted a 70% plunge in stocks this cycle. As the S&P 500 hits historic highs in 2024, this long-held view may seem out of place.  

But the Hussman Investment Trust president believes investor impatience and a fear of missing out are driving the dramatic runup, which will lead to a correction. There are certain valuation, investor psychology, and price behavior traits that develop when FOMO is extreme and speculation is narrow. The'motherlode' of these illnesses hit last Friday "Tuesday, he added.  

Overextended values, stock sector divergence, and unbalanced sentiment are bad flags, he said. Despite indexes rising, more stocks are hitting 52-week lows.  

"I continue to view the market advance of recent months as an attempt to 'grasp the suds of yesterday's bubble' rather than a new, durable bull market advance," stated. "I also believe that the S&P 500 could lose something on the order of 50-70% over the completion of this cycle, simply to bring long-term expected returns to run-of-the-mill norms that investors associate with stocks."  

Hussman, one of Wall Street's most negative forecasts, has predicted a 60% stock drop for months. Most top Wall Street strategists expect the S&P to stay above 5,000 through 2024.  

This is partly because the macroeconomic picture has improved since most experts predicted a recession in the first half of 2023. Hussman has predicted a major stock-market fall and a decade of negative equity returns, and as the stock market has risen, he's maintained calling for a harsh correction.  

He also observed in Tuesday's statement that his firm's most dependable indicator, the ratio of nonfinancial market capitalization to corporate gross value-added, now exceeds 1929's peak-to-trough Dow collapse of 89%.  

"Even the more conventional (but less reliable) S&P 500 price/forward operating earnings multiple is at levels that have no rivals except surrounding the 2000 and 2022 peaks," he said. "Put simply, my impression is that the period since early-2022 comprises the extended peak of one of the three great speculative bubbles in U.S. history."  

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