S&P 500 bottomed at 3,577 level in 2022 but a Piper Sandler analyst warns that we may see even worse this year.

Kantrowitz bearish view on S&P 500

Michael Kantrowitz sees downside in the benchmark index to 3,225 level – about a 16% downside from here. Defending his dovish view on CNBC’s “Power Lunch”, he said:

Last year, we saw a bond bear market really bang around equities and now we’ll see the lagged effect of this bond bear market or everything the Fed has done and will continue to do start to show up in earnings and employment.

On Thursday, Automatic Data Processing (ADP) said private payrolls went up by 235,000 in December; well above the 153,000 that economists had forecast.

Last month, billionaire investor David Tepper also said that he was “leaning short” on equities as Invezz reported here.

S&P 500 is not pricing in a recession

A day earlier, the U.S. Federal Reserve released minutes from its December meeting, indicating that officials see higher rates to remain in place for a while until inflation looks undoubtedly headed for its 2.0% target.

Consequently, Kantrowitz forecasts a hard landing in the back half of 2023 that’s not baked into the equities market just yet.

Last year was about multiple compression because of higher rates and what happened with inflation. That’s not the same thing as pricing in a recession. We can clearly see in the credit markets that hasn’t been the case.

Also on Thursday, S&P Global reported final services PMI for December at 44.7 – lowest level since last August.

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