Prediction April Rally updated the S&P 500 forecast for senior fund managers initially appeared on TheStreet.
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The S&P 500 released a torn return after the stock was sold in early April after Donald Trump said its Liberation Day tariffs, raising 20% in about six weeks.
The rally caught many investors off guard. Tariffs increase inflation, eliminate the potential of economic activity and corporate profitability to put stocks down 19%, just worse than bear market territory.
One investor who was not surprised was Doug Kass, a senior Wall Street hedge fund manager.
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Cass has been investing professionally since the early 1970s. His career includes serving as research director for Omega consultant to billionaire Leon Cooperman, allowing him to make several savvy calls, including forecasting the top bull market in 2021 and the low bear market in 2022.
Recently, Kass correctly predicted the stock market this year in December and accurately demanded the S&P 500 after a tariff-driven sell-off in April.
Kass has updated his views on stocks this week, and his latest thoughts may frustrate some investors.
The U.S. economy has slowed significantly since last summer, It should be Bad news for the S&P 500, given that company revenue and profit growth are the cornerstone of stock market valuations.
Economic headwinds include shifts in consumer spending, purchased as appropriate from sticky inflation. A weak job market has eroded consumer and business confidence.
Related: Stock market falls after unusual events
Uncertainties associated with severe tariffs and increased U.S. debt add to pressure.
In short, the background of stocks is not as good as stocks in 2023 and 2024, when the Fed will move from hawks to poor monetary policy and AI spending growth, which is a back-to-back of more than 20%.
Since 2022, inflation has retreated, its peak has exceeded 8%. However, core inflation remains above the Fed's 2% target. The latest core consumer price index and personal consumption expenditure data show inflation rates in April were 2.8% and 2.5%, respectively.
Meanwhile, the Fed's reduction rate in September, November and December last year has not yet withdrawn its recent job losses. The unemployment rate rose to 4.2% from 3.4% in 2023. According to Challengers, Gray and Christmas, the company announced more than 602,000 layoffs this year, an increase of 87% from last year.
Given inflation and employment data, there is no doubt that consumers will feel uneasy, especially in the midst of the turmoil of the trade war.
The meeting committee's expectations index rose in hopes of China's trade talks last month, but under the 72.8 expectations, it remains below the 80 threshold typically found before the recession.
Despite all the challenges, the stock market has been getting higher and higher since President Trump overturned the course on April 9 and stopped many of the reciprocity tariffs announced on April 2.
However, tariffs on Canada, Mexico and cars are still 25%, and tariffs on China are 30% (lower than the previous 145%). The recent decision by the International Trade Court to block most of Trump’s tariffs is seen primarily as temporary, and the White House can use a lot of leverage to continue its trade war. (In fact, the federal court of appeals believes that tariffs in the case have delayed the barriers to the trade court.)
However, the stock market basically shrugged, with the S&P 500 returning 20% from its April 8 low, including a month-on-month and 6% return in May.
In December, Kass correctly predicted that stocks would run too fast, with the S&P 500 earnings at 15%.
Initially, Kass was wrong because the S&P 500 S&P 500 gathered in mid-February. But given the S&P 500's 19% slide to early April, he continued to beat the bearish drums.
More economic analysis:
The rapid and steep decline in the stock market prompted Cass to look at the stocks correctly in April, citing the possibility of oversold rallies.
Now that we have received these expected gains, Cass has changed again in a clear bearish tone.
"I respect the excellent price momentum of the market for such a short-term time frame; however, I plan to put a larger short-term stake on the ground," Kass wrote in a post on TheStreet Pro. "And against consensus grains, and the cattle herd is nothing new to me."
Cass' bearishness stems from the rise of global economic uncertainty and the potential threat to the American concept of exceptionalism.
"Political and geopolitical polarization and competition may translate into less centristism, thus reducing the focus on deficits," Kass wrote. "This will create structural uncertainty, fiscal shock and global unwiseness. This will also create the possibility of demolitioners in bond markets."
Kass said that given Factset's forward price valuation of money-making has recovered again by 21. If the economy suffers from stubborn inflation and slow growth, a higher P/E ratio is problematic.
"However, I still see valuation and consensus expectations for economic and corporate profit growth swell," Cass wrote. "So, looking for soft data weakens hard data as the housing market slows down and middle class vulnerability is expected to weaken the hard data. The trend line economic growth is expected to be below the trend, with sticky inflation ahead ("Slugflelation").
How far can the S&P 500 fall if the situation worsens?
"I think there is less than 5% above, and 10%-15% downside. That's the unattractive ratio of nearly three to one," Cass said.
Related: Fed officials send strong message to cut interest rate cuts
Senior fund manager who predicts April rally updates the S&P 500 forecast, first appeared on TheStreet on May 31, 2025
This story was first appeared on May 31, 2025 by TheStreet.