Scott Minerd said that investors shouldn't get too excited about the recent rally in stocks as a big decline could be on the horizon.
The S&P 500 could crash 20% by mid- October due to poor seasonals and elevated valuations, according to a Thursday message from minerd. He spoke to CNBC about his bearish stock market views.
The trailing P/E ratio of the S&P 500 is 19x, which is stark. The S&P 500's P/E ratio has traded at 15.2x since 1960 when core PCE was 4%- 5%.
The stock market has entered its worst time of the year and a 20% decline in stock prices is possible if historical seasonals mean anything.
We should see a really sharp adjustment in prices very quickly, given where seasonals are and how far out of line we are historically with where the p/e is.
Most investors ignore Minerd's view that the economy has probably already entered a recession.
The recent strength over the last few days seems to suggest that the bear market is intact.
"We may very well already be in a recession, I don't see earnings picking up dramatically, and I see some downward pressure on earnings coming out of energy and other sectors where we've had price declines," he said.
The price of crude oil has fallen from its June peak.
Despite the fact that we are currently in a recession, investors are still holding out hope that a soft economic landing is still possible.
Not minerd who looks at other factors.
Productivity has been bad. We are getting more people back to work, but we are actually seeing a decline in output per worker.
The employment indicator isn't doing as well as it could. Unemployment tends to go up after the recession starts. A lot of the things people are pointing out are positive, but at the same time, inflation is running so high that it's actually negative numbers.
The yield curve is expected to become fully inverted if the Fed raises interest rates by 75 basis points this month.
The factors give Minerd confidence that the S&P 500 could trade between 3,000 and3,400 in the coming weeks. That's when the stock market will look more attractive.
Positive seasonals after October and a supportive Fed should bode well for a year-end recovery that could last into early 2023, according to minerd.
All Rights Reserved © 2024
