Doug Kass: S&P's 2025 Reward/Risk Ratio Now Leans Heavily to the Downside
Even after Friday's selloff, there are five key reasons why equities remain overpriced.
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As expressed earlier and over the last few weeks, going into this year I believed the S&P's 2025 upside was about +5% (not intended to be precise!) and the downside was between -10% and -15%.
This means, if I am accurate in view, the move towards the higher end of my year's forecast earlier this week substantially eroded the reward/risk ratio (even further) to virtually zero upside and 15%+ downside.
As also noted recently, I expected January to mark an overall market high for the year — particularly in the Mag 7 space (where I have AI concerns (See my "More Tales of Nvidia" series in the Daily Diary on TheStreet Pro) and the roll over in share prices are becoming more apparent).
With "slugflation" ahead (prickly inflation and sluggish economic growth), fixed-income markets providing a near equity-like return (with less volatility and risk), fiscal and monetary policy unpredictable (and, perhaps wrong footed), valuations above the 96%-tile and market structure being a bonafide concern (with most on the same side of the long boat), equities remain overpriced.
In late January my hedge fund began to liquify, taking off a number of longs and pairs trade in anticipation of a buying opportunity in the coming months.
Given the strategy I am employing, the idea of above-average cash reserves seems reasonable for many investors.
This commentary was orginally posted on Feb, 21 in Doug's Daily Diary on TheStreet Pro.
At the time of publication, Kass had no positions in any securities mentioned.
