The S&P 500 could drop another 20% in 6 to 18 months, says Leuthold’s CIO

via Matt Belvedere

  • There could be a lot more pain for the stock market if Leuthold’s Doug Ramsey’s historical valuation comparison becomes a reality.
  • Ramsey says the S&P 500 could decline 20 percent over the next six to 18 months.
  • The S&P 500 tanked 6.9 percent in October; bounced 1.8 percent in November; but was losing about 4 percent so far this month.

There could be a lot more pain for the stock market if Leuthold Group’s Doug Ramsey’s historical valuation comparison becomes a reality.

“If we were to mark down the S&P 500 to the same P/E on trailing earnings that existed … back in October 2007, the market would have to go down to 2,250, ” the Leuthold chief investment officer told CNBC on Friday.

“If you marked it down to the same price-to-sales ratio that existed in October of ’07, the market would need to go down to 2,050,” he added in a “Squawk Box” interview.

Based on Thursday’s S&P 500 close of 2,650, Ramsey’s price-to-earnings comparison would be a 15 percent decline. His price-to-sales comparison would be a 22 percent drop.

Ramsey said he could see declines of those magnitudes “over the next six to 18 months.”

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“I think it’s very likely.” he said. “And again, it’s the point that I don’t need to give you a draconian assumption to get that much down side.”

The Dow Jones Industrial Average dropped more than 200 points on Friday, with weak economic data from China to blame. The S&P 500 opened back in a correction, measured by a decline of 10 percent or more from its most most recent high.

Shortly after its all-time intraday high of 2,940 on Sept. 21, the S&P 500 tanked 6.9 percent in October, its biggest one-month slide since September 2011. It bounced 1.8 percent in November, but went right back into the soup in December, losing about 4 percent so far this month.

Many Wall Street strategists remain cautious or even bearish like Ramsey, including Morgan Stanley’s Michael Wilson, who sees a stagnant performance from stocks and the risk of an “earnings recession.”

But there’s a growing contingent of market watchers who are expressing optimism. UBS chief equity strategist Keith Parker told CNBC Thursday evening the S&P 500 could rise more than 20 percent by the end of 2019. Longtime strategist Jeff Saut of Raymond James predicted on CNBC Thursday morning the stock market has reached a bottom following a tumultuous 10 weeks.

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