Investors dangerously unaware of bear market’s impact on earnings

Famous short seller Jim Chanos sees an alarming trend in the market.

“I’ve been on the street [since] 1980 [and] not a single bear market has ever traded above 9 to 14 times previous peak earnings,” the Chanos and Company founder told CNBC’s “Fast Money” on Monday.

His latest warning comes midway through the earnings season, two days before the Federal Reserve’s interest rate decision and four days before January’s key jobs report. According to Chanos, the market will not be able to overcome the rise in rates and the decline in corporate profitability.

“Things aren’t cheap,” said Chanos, who acknowledges stocks are still cheaper than 18 months ago. “But people are evaluating in a pretty nice Goldilocks storyline.”

So far this year, the S&P500 is up almost 5%, with the media, Technology and Airlines companies lead the gains. On Tuesday, the index fell 1% to close at 4,017.77.

Chanos notes that the market is pricing in corporate earnings growth of 12% this year, inflation of 2% and Fed rate cuts in the next six to seven months.

“It’s pretty much nirvana if you’re a bull,” he said.

Chanos, who said he was not trying to time the market, doubts the bullish scenario is playing out.

“If you think earnings are now peaking at $200, that’s a long way down,” Chanos said. “It’s 1,800 to 2,800 [on the S&P 500]. We’re nowhere near that.”


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