Veteran businessman and Thinkorswim founder Tom Sosnoff is a contrarian by nature.
And where markets are currently trading has set off some internal alarm bells.
“It’s not that I think we’re going to roll over and crash or anything like that, but I think the odds support the downside in the market,” Sosanoff told me on Yahoo Finance’s opening bid.
Sosnoff added, “I think there are a lot of stocks that are very reasonably priced, and I know there aren’t a lot of other things to invest in and things like that. But I’m just saying that I think the stocks are absolutely valued. And I think if you get any kind of momentum like we saw last April — and I expect to see something like that or sell off a little bit in April this year. Off, maybe 10% to 15%.”
To Sosnoff’s point, there isn’t much margin for error in pricing in the market.
Wall Street is anticipating a big year for corporate earnings based on the outlook — everything from the economy to AI productivity to geopolitics — turns out great. This optimism has powered the S&P 500 (^GSPC) above 7,000 for the first time, with the Dow Jones Industrial Average (^DJI) knocking on the 50,000 threshold.
According to FactSet data, S&P 500 earnings are projected to grow by double-digit percentages in each quarter through 2026. 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 nearly 18% from current levels.
In contrast, the forward price-to-earnings ratio (PE) for the S&P 500 is 22 times – above the 10-year average of 18.7 times. Stocks are roughly as rich as they were when they peaked in early January 2022. What followed was the start of a nine-month bear market – the benchmark index plunged nearly 19%.
The background for the stock, however, is anything but perfect.
Fed Chairman Jerome Powell revealed Sunday night that the Justice Department has served the central bank with grand jury subpoenas, threatening criminal charges related to his testimony in the US Senate. At issue: Allegedly, the renovation of the central bank’s Washington, D.C., headquarters 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 demanding to reduce the interest rate. Powell affirmed that he performed his duties as Fed chairman “without political fear or favor.”
Many investors haven’t seen the heated battle between the Fed and the president play out in a public forum. Trump has repeatedly attacked Powell since regaining the Oval Office, with the latest news taking the situation to a whole new level.
Read more: How much control does the president have over the Fed and interest rates?
Federal Reserve Chairman Jerome Powell arrives at the US Federal Reserve in Washington, DC on January 13. (Reuters/Nathan Howard) ·REUTERS/Reuters
Professionals I spoke to said this dust-up was not in their bingo cards and that it adds uncertainty to the markets – especially the all-important bond market.
“First, I want to say that I don’t agree with everything the Fed has done,” JPMorgan ( JPM ) CEO Jamie Dimon told reporters on a call after earnings on Tuesday. “I have a lot of respect for Jay Powell the man. Everyone we know believes in the independence of the Fed, and so do we. And it’s not a good idea to do anything about that. And in my opinion, it will have the opposite effect. It will raise inflation expectations and over time, rates may rise.”
Meanwhile, the December jobs report showed only 50,000 jobs were created, below the consensus estimate for 70,000. A spate of more reports like this could dampen optimism on corporate earnings in the first half of 2026.
There’s also no guarantee that the Fed will cut interest rates as many times over the course of the year as consensus expects, Slatestone Wealth chief market strategist Kenny Polcari told me in the opening bid. That would be due to inflation cooling, and with the stock market on record it’s hard to justify additional rate cuts.
“Since the start of the recent rally, we have seen a steady strengthening of bullish momentum across a wide range of market indicators,” the team at Sundial Capital Research wrote in a new note. “Historical backtest data continues to build a compelling case for an ongoing uptrend. At the same time, recent readings from sentiment and valuation metrics provide an important reminder to investors. Ride the trend, but don’t fall in love with it.”
Stockstory aims to help individual investors beat the market.
Brian Sozzi He is an executive editor at Yahoo Finance and a member of Yahoo Finance’s editorial leadership team. Follow Sozzi on X @BrianSozzi, Instagramand LinkedIn. Suggestions on stories? Email brian.sozzi@yahoofinance.com.
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