Fund manager John Hussman remains quite bearish on the market, saying that stocks are showing signs of being in the “exhaustion” part of a bull market.

“We presently have an overvalued, overbought (intermediate-term), overbullish market featuring a variety of syndromes that have typically appeared in the ‘exhaustion’ part of the market cycle: elevated valuation multiples on normalized earnings, emerging divergences in market internals, an increasingly tepid economic backdrop, market prices near the upper Bollinger bands at monthly and weekly resolutions, and other factors that — taken in aggregate — have historically been associated with very weak average market outcomes,” Hussman writes in his latest market commentary (hat tip to Globe and Mail for highlighting the piece).

Hussman says that while valuations appear reasonable based on short-term measures of earnings, the data is misleading. “Presently, market cap is elevated because stocks seem reasonable as a multiple of recent earnings, but earnings themselves are at the highest share of GDP in history,” he says. “Valuations are wicked once you normalize for profit margins. Given that stocks are very, very long-lived assets, it is the long-term stream of cash flows that matters most — not just next year’s earnings. Stock valuations are not depressed as a share of the economy. Rather, they are elevated because they assume that the highest profit margins in history will be sustained indefinitely.”

Citing data from Ned Davis Research, Hussman says the stock market capitalization/GDP ratio is currently about 105% — higher than it was before the 1973-74 bear market and higher than it was before the 1929 market crash.