Veteran fund manager resets stock market forecast amid Musk, Trump fallout originally appeared on TheStreet.

Put two mercurial personalities in the room, add competing goals and a hefty dose of media pressure, and what do you get? Let's just say that the high-profile friend-to-foe saga isn't overly surprising.

Elon Musk and Donald Trump are polarizing figures with a penchant for dropping verbal bombshells, and that was particularly evident this week as the two sparred over the Big Beautiful bill, electric vehicle credits, and debt.

The rift may shock some, however, given how closely Musk and Trump worked together over the past year.

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Musk spent hundreds of millions helping elect Donald Trump as president, and Trump rewarded Musk with a high-profile role in his administration as the head of the Department of Government Efficiency, or DOGE. Trump even went so far as to host a Tesla showroom on the White House lawn to support Musk after Musk's political activism caused a drop in Tesla's sales.

One person who wasn't the least bit surprised by the high-profile dust-up was veteran hedge fund manager Doug Kass. Back in December, Kass picked the break-up as one of his top 15 surprises for 2025.

It was far from the only correct forecast for Kass. He also predicted a stock market reckoning could cause the S&P 500 to fall 15%, and in April, he accurately forecast that stocks would find their footing after the brutal sell-off.

Kass recently revisited his take on Musk and Trump, and how stocks may react to their fallout. His S&P 500 outlook may disappoint many, while his take on Trump and Musk might surprise most.

After back-to-back 20% gains in the S&P 500 in 2023 and 2024, including an impressive 24% return last year, investors may have complacently expected more good times in 2025.

Then reality set in. The stock market has whipsawed amid a series of shocks, many delivered by President Trump and Elon Musk, via his high-profile and much-debated cost-cutting at DOGE.

Related: Elon Musk latest message sends Tesla stock surging

Stocks came into 2025 arguably priced to perfection. Optimism for a friendly Federal Reserve shift in monetary policy to dovish interest rate cuts and a flood of artificial intelligence spending fueled big returns last year, pushing the S&P 500's price-to-earnings ratio north of 22.

Historically, returns following high P/E ratios have been largely lackluster. That point wasn't lost on Kass, who correctly said in December that the S&P 500 could drop 15% in 2025.