Hussman: Two-Tier Market Evokes "Nifty Fifty" Era

``Near the end of speculative runs, the market's most glamourous concept stocks often carry significant market capitalizations, and therefore drive movements in the capitalization-weighted indices without broad participation from the rank-and-file. In the short-term, that can be uncomfortable for hedged-equity strategies that are long a broad portfolio of value-oriented stocks and hedged with an offsetting short position in the major indices. Even if the cap-weighted indices outperform the portfolio of individual stocks by a few percent, that difference shows up as a loss of a few percent in the overall hedged position. It's easier to be patient when one recognizes that these episodes are temporary, and typically represent a significant red flag for the equity market.''