Doug Kass has a reputation for being spot on with his stock market calls. He called the March 2009 bottom and he also said the S&P 500 would end 2011 flat, which is exactly what it did.So, people listen when he makes calls on stocks.
This morning, Kass announced that he cut his valuation on the S&P 500 to 1335 from 1345.
From his commentary in Real Money Pro:
Technically, ever-rising share prices sow their own seeds of potential destruction. For example, I would beware the VIX, which is the best measure I know of measuring complacency in a market that has had no pause but contains a number of technical flaws.
Importantly, I depart from some of the (newly) converted bulls in that I do not expect that P/E multiples will reach their historical multiplier (of about 15x) experienced over the last five decades, as the new normal of slower and below-trend economic growth and other factors weigh on valuations. (Implicit in my melded fair market value of 1335 for the S&P 500 is a 13x P/E multiple.)
Here’s a brief roundup of what has changed for Kass:
- I am lowering the probability of an economic reacceleration in domestic activity (defined as +3% for 2012 real GDP);
- I am eliminating any possibility of a recession this year;
- I am modestly increasing the chance of sub-1% 2012 real GDP; and
- I am substantially raising the likelihood of a muddle-through scenario (defined as 2012 real GDP growth of between +1.5% and +2.0%).