Veteran businessman and founder of Thinkorswim Tom Sosnoff is a contrarian by nature.
And where the markets are currently trading, it has set off a few internal alarm bells.
“It’s not that I think we’re going to come and crash or anything like that, but I just think the odds favor the downside in the market,” Sosnoff told me on 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’m just saying that I think the stocks are fully priced. And I think if you have some kind of downward momentum, like we saw last April — and I expect to see something like that in March or April or maybe it could come in March or in April. nasty sales, maybe 10% to 15%.”
In Sosnoff’s point, there is not much margin for error that is priced into 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 to geopolitics – will go very well. This optimism led the S&P 500 (^GSPC) beyond 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 estimated to increase by double-digit percentages in each quarter through 2026, according to FactSet data. Earnings growth is expected to be strongest in the fourth quarter at 18.1%. For the year, earnings are modeled to grow 15%.
Meanwhile, the bottom-up strategist’s price target on the S&P 500 is a lofty 8,010 – up about 18% from current levels.
In turn, the forward price-to-earnings (PE) ratio for the S&P 500 is 22 times — well above the 10-year average of 18.7 times. Stocks are valued at almost as much as when they peaked in early January 2022. What followed was the start of a nine-month bear market – the benchmark index fell around 19%.
The background to the stocks, however, is anything but perfect.
The President of the Fed, Jerome Powell, revealed Sunday evening that the Department of Justice served the central bank with grand jury subpoenas, which threatened a criminal charge related to his testimony before the United States Senate. At issue: Allegedly, the central bank’s 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 for the move. The administration has been vocal in its desire for lower interest rates. Powell affirmed that he performed his duties as Fed president “without political fear or favor.”
