Cohen Warns: Market May Retest April Lows, Recession Risk at 45%

• Steve Cohen warned at the Zone Investment Conference that stocks could retest April lows, citing high valuations and slowing growth, and assigned a 45% chance of a U.S. recession, describing the market as “toppy.”
• Jim Chanos, a Tesla (TSLA) bear, criticized the company’s rising valuation amid declining earnings, attributing it to speculative hopes around robotaxis and autonomous robots, while downplaying Elon Musk’s DOGE initiative.
• Despite recent market optimism from moderating inflation and U.S.-China trade talks, cautions from Cohen and others like Citadel’s Ken Griffin highlight risks of a potential pullback, with upcoming economic data set to influence sentiment.

The U.S. stock market faces renewed caution from prominent investors, with billionaire Steve Cohen warning that equities could retest their April lows, a view shared by other industry heavyweights. Speaking at the Zone Investment Conference in New York, Cohen highlighted the unusual market dynamics of a sharp drop followed by a rapid recovery, likening it to pandemic-era volatility but emphasizing that current multiples and slowing growth signal potential risks. He assigned a 45% probability to a U.S. recession, describing the market as feeling “toppy” and suggesting that a retest of lows would not be catastrophic but warrants attention given his track record of accurate calls, including his bullish stance a few years ago when others were bearish.

Cohen’s remarks come amid a broader discussion of market sentiment, with CNBC moderators noting the investor’s historical prescience and expressing hope that this caution proves incorrect. The market’s recent rally, following a month of recovery, has been underpinned by optimism from events like the U.S.-China trade talks led by Treasury Secretary Scott Bessent, which temporarily eased tariff concerns. However, Cohen’s focus on valuation pressures and economic slowdown aligns with concerns raised by other investors. Ken Griffin, for instance, had previously suggested a potential retest of market lows before the trade truce, underscoring a cautious undertone among some hedge fund leaders.

At the same conference, Jim Chanos, a noted Tesla (TSLA) bear, doubled down on his skepticism about the electric vehicle maker, criticizing its rising valuation despite declining earnings and revenues. Chanos argued that Tesla’s stock is driven by speculative narratives around robotaxis, autonomous robots, and far-fetched ideas like asteroid mining, reflecting excessive investor optimism tied to Elon Musk’s vision. He also downplayed Musk’s DOGE initiative, suggesting its government savings would be minimal compared to broader tax policy impacts. Chanos’ bearish outlook extended to a trading strategy involving shorting Tesla while expressing selective bullishness on Bitcoin (BTC), indicating a nuanced approach to market opportunities.

The warnings from Cohen and Chanos reflect broader uncertainties as investors navigate economic indicators and corporate fundamentals. Recent data, such as April’s core CPI rising 0.2% against an expected 0.3%, has supported market optimism by signaling moderating inflation. However, upcoming releases like the producer price index and retail sales could either reinforce or challenge this sentiment. Cohen’s 45% recession probability introduces a sobering perspective, particularly given his emphasis on valuation pressures in a market where tech giants like Nvidia (NVDA) and Tesla have driven significant gains. While the market has shown resilience, the caution from seasoned investors suggests that risks of a pullback or economic slowdown remain, urging traders to stay vigilant.

WallStreetPit does not provide investment advice. All rights reserved.

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