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Wall Street veteran, and chairman of Houston-based investment firm Sanders Morris Harris, George Ball told Bloomberg on Wednesday that he sees the S&P 500 bottoming out at 3,100 from its all-time high of 4,796 in January.
However, while he said the fall will be uncomfortable, he believes his outlook is too gloomy considering the significant rally from the pandemic low.
Ball, a 60-year veteran, told Bloomberg we “all have the tendency to count down from the top and it doesn’t make any sense,” adding that it is “an erosion of gains rather than the accumulation of terrible losses.”
“A decline to 3,100 is a fairly normal cyclical adjustment, wiping out excesses of both economic stimulus and in psychology,” Ball stated.
Despite the pandemic-fueled surge, 2022 has seen stocks tumble, hitting bear market territory. Ball said “profit margins may be the next shoe to drop,” with corporate earnings a focus going forward, with analysts slow to revise forecasts meaningfully lower.
“Analysts like to be liked,” added Ball. “Particularly during good times, they anticipate that management and companies will beat earnings estimates and so they inflate somewhat to lead the target.”
Ball believes the Fed will be “more steadfast in stomping out inflation than what is going to be politically popular and is going to be more steadfast than I and others had thought a month ago.”
