The Standard & Poor’s 500 Index may retreat 20 percent from a 15-month high because stocks are expensive given prospects for economic and profit growth, says investing guru Marc Faber, publisher of the Gloom, Boom and Doom newsletter.
“The market has become overbought,” Faber told Business Week. “There isn’t a meaningful improvement in the economy taking place.”
The benchmark index for U.S. stocks, which closed at 1,150.23 on January 19, may fall to 920, says Faber, who recommended buying stocks in March, before the biggest rally since the Great Depression.
“The economy may disappoint somewhat in the next few months. The statistics that are being published are very questionable. The economy has stabilized, but isn’t really expanding.”
With unemployment staying at a relatively high level and with the revenue side being weak, Faber doubts that corporate profits will be great in 2010.
“Basically, the profits have been boosted by aggressive cost-cutting. The revenue side of corporations is weak,” he notes.
“This year, investors will never achieve returns as high as in 2009,” Faber says. “Stocks are relatively high compared to the fundamentals.”
The S&P index surged 70 percent from a 12-year low in March, and the S&P 500’s price-earnings ratio had jumped to 25, the highest since 2002, data compiled by Bloomberg show, and sales at the 122 S&P 500 companies that have reported results for the period since Jan. 11 have increased 13 percent, Bloomberg data show.
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