• The stock market looks poised to fall from its extreme heights, legendary investor John Hussman said. 
• Hussman said the stock market is mirroring the extremes leading up the 1929 crash. 
• A market crash as steep as 65% wouldn't surprise him, he's said previously. 

The Hussman Investment Trust president sounded another bearish warning on stocks this week, pushing back against the strength in equities so far in 2024. The S&P 500 has broken a series of record highs this year, and has regained momentum in recent days after a lackluster month in April. 

But the rally has largely been driven by a "certain impatience and fear of missing out" among investors — and market internals are looking "unfavorable,", Hussman said in a note.

His firm's most trusted valuation measure for stocks, which is the ratio of nonfinancial market capitalization to corporate gross value-added, is showing that the S&P 500 is priced at its most extreme levels since 1929, right before the market collapsed 89% peak-to-trough.

Hussman's firm is expecting the S&P 500 to underperform Treasury bonds by 9.3% a year for the next 12 years, based on his firm's internal metrics. That's the worst 12-year performance the metric ever predicted — even worse than in 1929 when market internals suggested that the S&P 500 would underperform Treasury bonds by 6% annually over the following 12 years.

"Statistically, the current set of market conditions looks more 'like' a major bull market peak than any other point in the past century, with the possible exception of the 1929 peak," Hussman said. "That's no assurance that the market will plunge, nor that it can't advance further. Still, given the combination of extreme valuations, unfavorable market internals, and dozens of other factors that cluster among the most 'top-like' in history, we're just fine with a risk-averse, even bearish outlook."

Hussman, who was among the investors who called the 2000 and 2008 market crashes, has refrained from making an official forecast on stocks. Still, he's cast an extremely bearish tone on the outlook for equities going forward.

Previously, he said that stocks looked like they were in the "most extreme speculative bubble in US financial history," adding that a crash as steep as 65% wouldn't surprise him. 

Individual investors are also starting to sour on stocks as they weigh hotter-than-expected inflation and dial back their expectations for Fed rate cuts this year. Just 39% of investors said they were bullish on stocks over the next 6 months, according to the AAII's latest Investor Sentiment Survey.