The stock market has been on a wild ride in April.
It came into the month already struggling, but President Trump’s trade war has put investors on a roller coaster ride. After announcing widespread tariffs on April 2, so-called Liberation Day, the S&P 500 and Nasdaq tumbled, falling 12% and 13% through April 8. Then, a partial about-face kicked off optimism that the trade war wouldn’t be long-lasting, sparking a rally that’s since lifted the two major indexes by 9% and 11%.
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The dramatic drop and subsequent pop likely caught many investors offside. Longtime hedge fund manager Doug Kass wasn’t among them.
Kass’s career spans roughly 50 years, including a stint as research director for Leon Cooperman’s Omega Advisors.
In December, he correctly predicted stocks would tumble in 2025, then he accurately switched gears, buying stocks near April’s lows.
His prescient predictions suggest it’s wise to heed what Kass says may happen to the stock market next.
Image source: Nagle/Bloomberg via Getty Images
The Federal Reserve risks falling behind the curve
The Fed is tasked with maintaining low unemployment and interest rates, a Herculean task nowadays, given signs of a weakening jobs market and tariff risks sparking inflation.
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The Fed’s dual mandate is often at odds. Increasing rates can slow inflation, like in 2023, but slower growth can mean lost jobs. Conversely, lowering interest rates can reduce unemployment, but the subsequent lift in economic growth kindles inflation.
The competing goals are particularly problematic this time around, given that unemployment has crept higher to 4.2% from 3.4% in 2023, and CPI inflation of 2.4% remains above the Fed’s 2% target even as tariffs threaten to raise prices on everything from clothing to cars.
The dynamic isn’t lost on Fed Chairman Jerome Powell, who is walking a tightrope on interest rates.
“We may find ourselves in the challenging scenario in which our dual-mandate goals are in tension,” said Powell last week in a speech that most believe left the window open to interest rate hikes if tariff-driven inflation doesn’t prove temporary.
Powell’s reticence to cut rates amid a slate of data suggesting the economy is already on a path to stagflation or recession has drawn the ire of President Trump, who has amplified his criticism of Powell.
“With these costs trending so nicely downward, just what I predicted they would do, there can almost be no inflation, but there can be a SLOWING of the economy unless Mr. Too Late, a major loser, lowers interest rates, NOW,” wrote Trump on his social media site, Truth Social.
Related: Billionaire fund manager sends hard-nosed message on recession in 2025
The tension has made many worry that the President may challenge the Fed’s independence. The Fed is designed to set policy independently, without input from politicians and their lobbyists.
The dust-up caused stocks to drop, prompting President Trump to say on April 22 he wouldn’t try to fire Powell.
Nevertheless, if economic data and consumer sentiment worsen, suggesting the Fed is behind the curve on cutting rates, the war of words may escalate, adding to the stock market’s troubles.
Fund manager sends stark message on what’s next for the stock market
Kass’s long career means he successfully navigated the inflation scare in the 1970s, the S&L crisis in the late 80s and early 90s, the Internet boom and bust, the Great Recession, the Covid pandemic, and 2022’s bear market.
To say he’s seen a thing or two over the past five decades is an understatement. That experience helped him correctly forecast the S&P 500’s drop and recent relief rally.
Unfortunately, Kass isn’t convinced that stocks are done falling.
“I see limited upside from here,” wrote Kass bluntly on the X account for his hedge fund Seabreeze Partners. “My view is that the S&P has upside to 5500-5600. That is all. I plan to short aggressively into this target.”
Kass’s target doesn’t comfort investors, given that the S&P 500 is trading at 5,444 on April 24. If he’s correct again, stocks could rally another 1% to 3% before beginning yet another retreat.
“The markets are vulnerable to a possible retest of the lows,” wrote Kass in his TheStreet Pro Diary. “The S&P Short Range Oscillator has risen to overbought at 3.02% vs. 0.67%, from substantially oversold a week or so ago.”
Related: Veteran fund manager unveils eye-popping S&P 500 forecast
