Top Stories
Top Stories
Investing

'Scary over the next couple of months' — boutique investing chief says 2019 rally won't last

Key Points
  • Leuthold Group's Doug Ramsey lays out a series of worst case scenarios for stocks, including a "broad and deep revaluation" during the next recession.
  • Over the next year, Ramsey believes the S&P 500 could "undercut" last year's closing low of 2,351 on Christmas Eve.
  • "I think it's going to be scary over the next couple of months," says Ramsey, suggesting that bonds might not be a bad place to park money.
VIDEO4:4904:49
The next couple of months will be 'scary' for the markets, Leuthold Group CIO says

Doug Ramsey, chief investment officer of the boutique Leuthold Group, on CNBC Wednesday laid out a series of worst case scenarios for stocks, including a "broad and deep revaluation" of the market during the next recession.

Ramsey said he sees a U.S. economic recession in the next two years that could wipe out all the stock market gains of Donald Trump's presidency. The S&P 500, as of Tuesday's close, was up 28 percent since Election Day on Nov. 8, 2016.

During the past three recessions, the S&P 500 lost about 37 percent from December 2007 to June 2009; lost about 2 percent from March 2001 to November 2001; and actually gained 5 percent from July 1990 to March 1991.

Over the next year, Ramsey believes the S&P 500 could "undercut" last year's closing low of 2,351 on Christmas Eve, which capped off a volatile year and a dismal final three months of 2018.

"I think it's going to be scary over the next couple of months," Ramsey said in a "Squawk Box" interview, a day after the S&P 500 surged nearly 1.3 percent to 2,744 for its third straight positive session. The index, however, remained about 6.8 percent below its all-time closing high of 2,930 back in September — even with the 16.7 percent gain since Dec. 24.

Ramsey, in making his case, reiterated a couple valuation comparisons he made in mid-December. He said a markdown to the same price-to-earnings ratio seen at the October 2007 top would send the S&P 500 to 2,250, about 18 percent below Tuesday's close. The same comparison but using price-to-sales would sent the index to 2,050, about 25 percent lower.

Investors might want to consider bonds rather of stocks, Ramsey suggested.

Yields on 2-year, 5-year, and 10-year Treasurys are all "below levels they hit at the Christmas-Eve lows" in the stock market, he said. "You could be back to having a 1-handle on the yields I just mentioned — 2s, 5s, and 10s. I don't think it's a bad place to park money right now; away from stocks and into the intermediate part of the Treasury curve." A 1-handle means a number below 2 percent.

VIDEO4:2604:26
'We’re in for some rough sledding'—Watch five Wall Street experts explain where stocks are headed

Many Wall Street strategists are cautious after stocks touched a bear market — down 20 percent or more from their recent highs — at the lowest levels of 2018. But there's certainty debate on whether the market will re-test those lows.

In fact, Tom Lee, co-founder of Fundstrat Global Advisors and former J.P. Morgan chief equity strategist, told CNBC last month that he believes the Christmas Eve low could very well be a generational bottom. "I think 2,350, for a lot of reasons, is the low that people have to treat like 2009. I think what happened last year is a lot like 2008. And this year may play out a lot like 2009," he said on Jan. 31.

For all of 2009, the S&P 500 gained nearly 26.5 percent after hitting a financial crisis closing low of 676 on March 9 of that year.

Sign Up for Our Newsletter Morning Squawk

CNBC's before the bell news roundup
Get this delivered to your inbox, and more info about about our products and services.
By signing up for newsletters, you are agreeing to our Terms of Use and Privacy Policy.