The current rebound might be a sign that the stock market is moving too fast, says short seller Doug Kass.
The Palm Beach money manager says the market may not be factoring in negative issues such as consumer sentiment and a high unemployment rate.
“By contrast, I have argued that a number of nontraditional headwinds coupled with a weakened consumer would result in a degree of uncertainty and the likelihood that a wider range of economic outcomes are possible, some of which are not market-friendly.
“While I am respectful of Mr. Market, there is no message in the recent market upturn nor, more importantly, in recent economic releases that lead me to change my baseline view that market and economic challenges will rise anew next year along with the withdrawal of stimulus and the threat of higher taxes,” he writes on thestreet.com.
Kass said the current market valuation is factoring in a positive economic outlook.
“It is hard for me to know to what degree the optimism in the market and in the revised S&P price targets is sentiment-driven or whether it is entirely a fundamentally based belief.
“In bull markets, there is often no clear demarcation between fantasy and progress. While I am of the view that we are now on a slippery slope, that doesn't necessarily mean that the markets won't continue to advance; they can as the crowd usually defeats the remnants. The animal spirits are in force, and the momentum remains undeniable, but we can't lose sight that markets often overshoot,” Kass writes.
The recent market rally comes with a mixed bag, Bloomberg reported.
“It’s a good news, bad news story,” said Nariman Behravesh, chief economist at IHS Global Insight.
“The corporate sector is going to be in very good shape financially, and that’s good for the stock market.
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