Traders are dangerously ignoring the influence of the bear market on earnings
Famed short seller Jim Chanos sees an alarming trend in the market.
“I was on the street [since] 1980 [and] not a single bear market has ever traded more than nine to 14 times previous peak gains,” the Chanos & Co. founder told CNBC’s Fast Money on Monday.
His latest warning comes in the middle of earnings season, two days before the Federal Reserve’s interest rate decision and four days before the key January jobs report. According to Chanos, the market will not be able to offset rising interest rates and falling corporate profitability.
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“Things aren’t cheap,” said Chanos, who acknowledges stocks are still cheaper than they were 18 months ago. “But people are pricing in a pretty nice Goldilocks scenario.”
So far this year the S&P500 is up nearly 5%, with media, technology and airlines leads the profits. On Tuesday, the index fell 1.3% to close at 4,017.77.
Chanos notes that the market expects corporate earnings to rise 12% this year, inflation at 2% and the Fed to cut interest rates within the next six to seven months.
“That’s pretty much nirvana when you’re a cop,” he said.
Chanos, who said he is not trying to time the market, doubts the bullish scenario will develop.
“If you think earnings are peaking at $200 now, that’s a long way down,” Chanos said. “That’s 1,800 to 2,800 [on the S&P 500]. We’re not there yet.”