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Summers sees possible rate hike
Harvard economist and former Treasury Secretary Larry Summers sees a 15% to 25% chance that the Fed will raise rates this year.
With the shift of interest-rate forecasts, it’s been the strong economy fueling the stock market’s gains. The Atlanta Fed GDPNow forecast tool shows a slowdown to 2.4% growth in the first quarter, but that’s still a buoyant number.
Investors expect economic strength to boost earnings. According to FactSet, analysts predict S&P 500 earnings will gain 3.2% in the first quarter from a year earlier, representing the third straight quarter of growth.
Related: Analyst overhauls S&P 500 target ahead of earnings season
Earnings season kicked off on April 12, with major banks posting mixed results.
Another factor boosting stocks over the past year, of course, is investor mania for artificial intelligence. That has especially lifted technology stocks. The tech-heavy Nasdaq Composite index hit an all-time high on April 11. AI titan, Nvidia, is up about 125% from its low last October.
The S&P 500’s valuation is stretched
The market rally has sent stock valuations above historical norms. The forward price-earnings ratio for the S&P 500 stood at 20.5 on April 5, according to FactSet, topping the five-year average of 19.1 and the 10-year average of 17.7.
To some experts that’s a sign stocks are out over their skis (overvalued). One bear is Vincent Mortier, chief investment officer at Amundi, Europe’s biggest money manager. “I have a feeling we’re at the beginning of 2000,” when tech stocks crashed, he told Bloomberg.
Fund manager interviews:
Trouble in the commercial real estate market means “there’s also a little bit of 2007,” when the financial system began to wobble, he said.
Fund manager Doug Kass’ tough take on stocks
Another prominent bear is TheStreet Pro’s Doug Kass, a hedge fund manager whose career spans the 1970s and includes a stint as the Director of Research at Leon Cooperman’s Omega Advisors.
Like Summers, he doesn’t see inflation going away easily. “The Fed’s 2024 narrative that inflation was coming under control is as feckless and wrong-footed as its 2021 narrative that inflation would be transitory,” Kass wrote on April 11.
On April 6, he cited a host of factors that will weigh on stocks in the future:
Related: Risk Happens Fast: Doug Kass
Kass’ long bearish list of headwinds suggests a lot must go right for stocks to continue higher, but not much must go wrong for them to go lower.
Related: Veteran fund manager picks favorite stocks for 2024
