Stock valuations mirror the extremes of 1929 and the market is at risk of a steep crash, legendary investor John Hussman says

• Stocks look like they're in the most extreme bubble in history, investor John Hussman said. 
• The legendary investor thinks stocks look as overvalued as they were in 1929 and in 2021.
• That means the market could be at risk for a steep correction, he said in a recent note.

Stock valuations look as extreme as they were in 1929 and 2021 before markets tanked, and investors are at risk of experiencing a steep crash, according to John Hussman.

The legendary investor who called the 2000 and 2008 market crashes cast another warning for the stocks this week as investors sent the market to all-time highs on the back of the Fed's latest policy update that reiterated the outlook for rate cuts in 2024. 

But that enthusiasm is putting the market in a precarious position similar to what was seen prior to the 1929 crash, or the market peak in 2021 ahead of the following year's bear market. 

That outlook supported by a number of valuation measures, Hussman said in a note on Thursday. His investment firm's most reliable measure, which is the ratio of nonfinancial market capitalization to gross value-added, is sitting at its highest level since the 1929 stock-market peak, right before the market crashed and sent the Dow plummeting 89% peak-to-trough.

"My impression is that investors are presently enjoying the double-top of the most extreme speculative bubble in US financial history," Hussman wrote. 

Hussman has repeatedly warned that over-speculative market bubbles have rarely ended well for traders, and in prior periods, stocks generally hit a "limit" to speculation before suffering from a sharp decline.

"Presently, we observe neither favorable valuations, nor favorable market internals, while our syndromes of overextension remain consistent with the risk of an abrupt air-pocket, panic, or crash," he warned. "Even with the adaptions we've made in this cycle, present observable conditions encourage a strongly defensive stance here." 

Hussman is among the most bearish forecasters on Wall Street, as more investors skew bullish amid the stock market's months-long rally. In October, he said the S&P 500 risked plunging 63% once the speculative market bubble bursts, which would send the index to its lowest level since 2013.

He's refrained from making an official forecast in recent warnings, stating that a crash of that magnitude wouldn't surprise him.