The Standard & Poor’s 500 Index is overvalued and may plunge 62 percent before hitting its bear- market bottom, according to David Tice, the chief portfolio strategist for bear markets at Federated Investors Inc.
Stocks are overpriced relative to earnings, which aren’t even expected to rebound soon after posting the longest quarterly slump since the Great Depression, Tice said. Analysts estimate that the earnings decline that has lasted for six straight quarters will get worse before it gets better, with profits at S&P 500 companies decreasing for three more periods, according to data compiled by Bloomberg.
“We are closing down factories and retailers and businesses all over the place,” he said in a Bloomberg Television interview. “How in the world are earnings going to stabilize? We just don’t see it.”
The Federated Prudent Bear Fund that Tice founded returned 6.7 percent last year as the S&P 500 plunged 38 percent, the most since 1937.
Tice said the benchmark index for U.S. stocks may slump to 500 this year and eventually fall to 325. It closed Thursday at 865.30. The measure has surged 28 percent since March 9, the most in five weeks since the 1930s, according to Howard Silverblatt, an index analyst at S&P in New York.