Wall Street’s most reputable titans warn that “the worst is yet to come” for stocks: why they are bearish in the short term

Although it seems so not everyone on wall street is bearish right now.

Tom Lee, Fundstrat’s chief equity strategist and former JPMorgan chief US equity strategist, said in a note to clients last week that he still sees the S&P 500 rising as high as 5,100 basis points in 2022, despite it currently stands at 3,693. His reasoning is that inflation is falling and the Federal Reserve (Fed) may reverse its aggressive stance next year.

Barry Banisterchief US equity strategist at Stifel, made a similar argument in a note on Thursday 22. Despite seeing a Fed-induced recession and a preceding market crash in mid-2023, Bannister believes equities should pick up from the fourth quarter of this year to the first quarter of 2023 as inflation falls.

In addition, heStocks have historically outperformed from November to May, he points out. Bannister’s year-end price target for the S&P 500 is 4,400 points.

However, while some big Wall Street names remain short-term bulls, a growing number of big market stars are also bearish on stocks for the coming monthsas the Federal Reserve pushes ahead with tighter monetary policy to cool inflation to 8.3%.

In the last days, several of them —such as Ray Dalio, Jeremy Grantham, Scott Minerd and Carl Icahn— have warned that new falls are ahead. Their warnings are compiled below.

Ray Dalio, founder of Bridgewater Associates

Dalio, founder of the largest hedge fund in the world, stated on Wednesday the 21st in the MarketWatch Best New Money Ideas Festival that stocks face a battle on 2 fronts.

One is that of the higher yields that they will continue to face while the Fed continues to raise interest rates. Higher yields on risk-free assets like Treasuries make riskier assets like stocks less attractive.

Wall Street’s biggest investors fear a real economic nightmare, and they may be right

The other is the damage to corporate profits which, in his opinion, is likely to happen, thanks to the Fed cooling off consumer demand with its hawkish policies.

“I think that as interest rates are raised to what is appropriate, competition is going to drive them down and also hurt earnings and the economy,” the Bridgewater Associates founder predicts.

Jeremy Grantham, founder of GMO

Jeremy Grantham, who spoke at the Global Markets Forum of Reuters on 7 September, he has not beaten around the bush in describing the current state of the world economy, in a context in which central banks around the world tighten policy to curb inflation.

“This is a more dangerous time in the world economy than even the madness of the housing bubble of 2007”he maintains.

Grantham points out that the S&P 500 could end up falling 38% or more from the January highs. In late August, he declared that stocks were in their fourth “super bubble” in a century, with valuations 2.5 standard deviations off their norm, according to GMO models.

“Each cycle is different and unique, but all the historical parallels suggest that the worst is yet to come”Grantham states in the August note.

Scott Minerd, CIO of Guggenheim Investments

Minerd has also said that valuations remain too high for how high inflation is. In a Tweet of September 8 wrote that stocks, by historical standards, should be down 20% by mid-October.

Since then, the shares are down 7.8%.

Earlier this week, Minerd has also advised investors not to buy stocks until the Fed finishes raising rates.

“[Para] people who talk about a stock market bottom, I would only point out one thing: we have never bottomed in the market while the Fed continues to raise rates,” Minerd told The Exchange of CNBC last Monday the 19th.

“In the end, this will end in tears”Add.

Carl Icahn, founder of Icahn Enterprises

Icahn has also pointed out last week that, in general, the environment is bad for economic growth and investors with the Fed tightening, which he supports.

He believes the Federal Reserve should have raised 100 basis points at its Wednesday meeting instead of 75 and blames the central bank for fueling inflation.

“I think it’s going to get worse before it gets better. The worst is yet to come”, warns Icahn at MarketWatch’s Best New Ideas in Money Festival.