Bill Smead, manager of the Smead Value Fund (SMVLX), expressed skepticism about Wall Street's optimistic S&P 500 predictions for 2025, emphasizing that the market's current rally ignores the rising interest rates on 10-year Treasury notes, which have recently approached 5%. Smead noted that stock valuations are historically high, with the S&P 500's forward price-to-earnings ratio at 21 and the Shiller CAPE ratio around 37, one of its highest levels ever.
Despite a median Wall Street price target of 6,600 for the S&P 500 by the end of 2025, Smead believes we are in the early stages of a market correction, warning that investors could face significant losses over the next 2-3 years. He stated that the percentage of household assets in equities has reached an all-time high of nearly 45%, further inflating valuations.
Goldman Sachs strategists echoed concerns about market corrections, suggesting that future declines are more likely to stem from rising bond yields rather than economic downturns. Smead's views align with other prominent investors who share his apprehensions about a potential market unraveling.
This cautionary outlook comes as the Federal Reserve's dovish stance has led to rate cuts, yet inflation remains a concern, complicating the market's trajectory for 2025.