Veteran trader and Thinkorswim founder Tom Sosnoff is a contrarian by nature.
And where the markets are currently trading has set off some internal alarm bells.
“I don’t think we’re going to turn around and crash or anything like that, but I just think the odds favor the downside in the market,” Sosnoff told me at Yahoo Finance’s Opening Bid.
Sosnoff added, “I think there’s a lot of stocks that are very fairly priced and I know there’s not a lot of other things to invest in and things like that. But I’ll just say that I think stocks are fully priced. And I think if you get some momentum going down like we saw last April — and I expect we’ll see something like that in March or April or maybe you’ll get a little bit in March or April or maybe you’ll get a little bit in March or April or maybe you’ll get a little bit in March or April. bad sales, maybe 10% to 15%.”
In Sosnoff’s view, there isn’t much margin for pricing error in the markets.
Wall Street is expecting a big year for corporate earnings, based on the view that mostly everything — from the economy to AI productivity and geopolitics — is going great. That optimism propelled the S&P 500 (^GSPC) above 7,000 for the first time, with the Dow Jones Industrial Average (^DJI) knocking on the door of 50,000.
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S&P 500 earnings are expected to grow by double-digit percentages each quarter through 2026, according to FactSet data. Earnings growth is expected to be strongest in the fourth quarter at 18.1%. For this year, revenue is modeled to grow 15%.
Meanwhile, the bottom-up strategist’s price target on the S&P 500 is 8,010 — up about 18% from current levels.
In turn, the forward price-earnings (PE) ratio for the S&P 500 is 22 times — well above the 10-year average of 18.7 times. Shares are nearly as richly valued as when they peaked in early January 2022. What followed was the start of a nine-month bear market — the benchmark fell about 19%.
The background for the actions, however, is not perfect.
Fed Chairman Jerome Powell revealed late Sunday that the Justice Department had served the central bank with grand jury subpoenas, threatening criminal indictment related to his testimony before the US Senate. At issue: the central bank’s alleged renovation of its headquarters in Washington, DC, and whether Powell misled Congress about the depth of the project.
In a video statement, Powell described the investigation as “unprecedented” and questioned the motivation behind the move. The administration has expressed its desire to reduce interest rates. Powell said he performed his duties as Fed chairman “without political fear or favor.”
