"Investors should keep in mind that market valuations stand nearly three times the historically run-of-the-mill valuation levels from which stocks have historically generated run-of-the-mill long-term returns," says John Hussman, president of the Hussman Investment Trust, in his latest note to investors.

"In fact, the highest level of valuation ever observed at the end of any market cycle in history was in October 2002, and even that level is less than half of present valuation extremes."

To Hussman, this indicates that there's a wide disconnect between valuations and underlying fundamentals.

"This doesn't mean that valuations have 'stopped working,'" he said.

"It means that speculative psychology plays an important role over shorter segments of the market cycle, and that investors place themselves in grave danger if they assume, at points of extreme confidence, that valuations can be ignored."