HUSSMAN: The Rare ‘Exhaustion Syndrome’ Is Signaling A Major Sell-Off

“Fund manager John Hussman sees ominous signs in the market right now that a big decline could be right around the corner.

His latest weekly market comment discusses extraordinary market strains:

One of the immediate issues I have with stocks here is the “exhaustion syndrome” (see Goat Rodeo) that has re­emerged in recent weeks. Examining the rare past instances of this syndrome, in 1961, 1987, 2000, and early-­2008 among others, the key feature is a breakdown in measures of market action from an overvalued, overbought extreme, followed by a recovery rally toward the prior high and accompanied by earnings yields below their level of 6-­months earlier. Normally, the recovery carries the market back to the prior “line” of support that surrounds the peak. The emergence of this exhaustion syndrome may seem benign or unimportant, but it has historically been an important precursor of major market declines. Given what are already significant challenges for both the economy and for the prospective return/risk tradeoff in stocks, my concerns about the potential for deep market losses remain elevated.”

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