As U.S. stocks move into unchartered territory, with the Dow Jones Industrial Average hitting another record closing high and the S&P 500 within one percent of its 2007 peak, Jim O’Neill, chairman of Goldman Sachs Asset Management is turning cautious on his outlook for the market.
“I am not that confident about what happens next and as to whether all these trends are going to continue, not least because May is now less than two months away and the infamous ‘Sell in May and go away, come back on St Leger’s Day’,” O’Neill, the man famous for coining the acronym BRIC, wrote in a note on Monday, referring to an old market superstition that investors should sell stocks in May, as returns in the period between May and September are typically weak.
He noted that while U.S. stocks may strengthen further in the near-term, helped by positive economic data, valuations are beginning to look pricey.
“They are hardly bargain basement these days from a CAPE [cyclically adjusted price-to-earnings ratio] perspective,” O’Neill said. CAPE is a modification of the PE ratio to account for the impact of the business cycle on earnings.
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