Hedge-fund manager Doug Kass, who this year took on an overweight position in U.S. equities, now says the stock market could drop between 5 and 6 percent given the magnitude of its rally in recent weeks.
"Given the scope and duration of the recent market advance, I believe that the U.S. equity market is vulnerable to a short-term decline of 5 percent to 6 percent," Kass said in a note to clients on Monday.
"Above-average cash positions should now be held in light of a possible market correction and in order to have excess reserves to capitalize on opportunities available in a volatile trading environment," he added.
"Given that credit has underperformed equity and that credit currently provides out-sized yields versus Treasuries, most portfolios should substantially overweight credit holdings, which are senior claims relative to equity," Kass added.
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