+ A 32-year market vet breaks down why he ‘certainly wouldn’t rule out’ 33% further downside in stocks as the market battles inflation, historically high valuations, and over-optimistic earnings expectations<\/strong><\/p>\n The market vet is\u00a0Michael Lebowitz,\u00a0a portfolio manager at RIA Advisors.<\/p>\n Valuations, despite having come down significantly since the start of the year, remain historically elevated, he said. The\u00a0S&P 500’s cyclically adjusted price-to-earnings, or CAPE, ratio has come down to 28, but is still above it’s average since 1950 of 20. The CAPE ratio is one of the most commonly used ways to measure stock market valuations.<\/p>\n With\u00a0inflation at 41-year highs of 9.1%, Lebowitz said valuations have further to fall. This is typically because the Fed is forced to tighten policy and pull liquidity out of the market, like the central bank is doing now. The Fed hiked interest rates by 75 basis points in June for the first time since 1994, and began shrinking its $9 trillion balance sheet.<\/p>\n Lebowitz analyzed data back to 1920 showing that when inflation is above 4%, valuations tend to decline. A CPI at 9% has historically meant a market CAPE ratio roughly between 5-15.<\/p>\n If the market’s CAPE ratio returns to its historic norm of 20, it would put the S&P 500 at 2,647, more than 33% below Friday’s close around 3,950. (It closed last night 3,921.) The index is down more than 17% this year, writes Lebowitz.<\/p>\n Lebowitz said it’s more likely that the index falls to around 3,400, but assigned a 25-35% chance that it gets down to around 2,650.<\/p>\n “As long as the Fed maintains their aggressive stance, I think stock prices decline,” Lebowitz told Insider on Friday. “I certainly wouldn’t rule out 2,600 by any stretch.”<\/p>\n He added: “That’s a historical average for a reason.”<\/p>\n In addition to bringing valuations down further, Lebowitz warned that\u00a0Fed tightening due to high inflation would also lead to downward earnings revisions, meaning further downside for stocks.<\/p>\n In his commentary, he pointed out that earnings tend to fall between 10-25% in recessionary periods, but declines have been more severe in a few instances.<\/p>\n “I think they’re still overestimating earnings,” Lebowitz said. “What’s starting to happen now is that companies are struggling to pass through inflation to consumers.”<\/p>\n Lebowitz’s concerns about downward earnings revisions ahead are in line with much of Wall Street as the Fed is forced to continue tightening policy to cool inflation.<\/p>\n Strategists and money managers at institutions like\u00a0Goldman Sachs, Morgan Stanley, Piper Sandler, Glenmede, and more are warning of earnings destruction\u00a0thanks to tighter policy, inflation, and a stronger US dollar that hurts exports.<\/p>\n “Ultimately, the Fed wants a meaningful economic slowdown to curtail inflation and a stronger dollar is part of that cocktail,” Morgan Stanley’s chief US equity strategist Mike Wilson said in a July 10 note.<\/p>\n He continued: “From the standpoint of stocks, the stronger dollar is going to be a massive headwind to earnings for many large multinationals. This could not be coming at a worse time as companies are already struggling with margin pressure from cost inflation, higher\/unwanted inventories, and slower demand.”<\/p>\n Wilson is calling for 10-15% further downside for the S&P 500.<\/p>\n Goldman Sachs’ Chief US Equity Strategist David Kostin said downward revisions could soon be ahead as companies give forward guidance on earnings calls this month and next.<\/p>\n “2Q earnings season will likely be a catalyst for negative revisions as companies offer cautious commentary,” Kostin said.<\/p>\n Kostin’s price target is 4,300 without a recession and 3,150 with a recession.<\/p>\n On the valuations front, some on Wall Street argue that valuations have returned to reasonable levels. But that depends on the valuation measure being used. Bank of America’s Head of US Equity and Quantitative Strategy Savita Subramanian said in June that 14 of their 20 valuation measures remain historically high.<\/p>\n Subramanian recently lowered her 2022 S&P 500 price target to 3,600, making her the\u00a0most bearish strategist among the major Wall Street banks.<\/p>\n The main problem facing stocks right now is inflation. Until rising prices begin to slow, the Fed appears committed to tightening until the labor market is hurt significantly enough.<\/p>\n But neither has happened yet, which means bad news ahead for stocks, Lebowitz said.<\/p>\n “As long as the Fed focuses heavily on taming inflation with aggressive monetary policy, we should expect a bearish trend,” he said in his commentary. “We will reconsider our position when the Fed starts to ease off its hawkish rhetoric.”<\/p>\n You can read the entire article\u00a0here.<\/strong><\/a><\/p>\n It was 115 where they lived<\/strong><\/span><\/p>\n + It was 115, so they took a cruise to Iceland ..it was a nightmare, He got covid and got locked up alone in his cabin for five days. Weather cancelled two ports. Their luggage got lost. It took them three weeks to find it. It was the trip from hell.<\/p>\n + Friends wanted to go to France. They had nice seats on Delta. But Delta didn’t tell them about the<\/p>\n which you need for travel to France, Slovenia, and Malta — but not<\/strong> anywhere else. (Go figure!)<\/p>\n Get your form\u00a0before<\/strong> you go to the airport. Click\u00a0here<\/a>\u00a0<\/strong>or\u00a0here.<\/a><\/strong><\/p>\n Don’t expect to show it to anyone in France. This is bureaucracy gone insane.<\/p>\n To reiterate again, here are the best tips on traveling this summer:<\/p>\n + Book the first flight of the day.<\/p>\n + Don’t check luggage. Pare. Pare and pare again. Most places have washing machines. All have sinks. Take soap. (Wow. What advice!)<\/p>\n + Only buy your ticket from your airline. Don’t buy discount fares, or from companies like Expedia. If you have a ticket form them, the airlines will treat you like drek.<\/p>\n + Use FlightAware.com to find your plane. It will alert you to potential delays — long before your airline does.<\/p>\n + Use your airline\u2019s phone app or website.<\/p>\n + If you must use airport personnel, start with flattery. I believe most of my readers are intelligent enough to understand the value of flattery.<\/p>\n Now is the time to buy a new laptop.<\/strong><\/span><\/p>\n First, my basic assumption.\u00a0 Buy the fastest, biggest, meanest machine now. Reasons:<\/p>\n + First, it takes time to set up. No reason to set up a slow machine you\u2019ll change in a year.<\/p>\n + Second, you spend your life on it. Why frustrate yourself because you\u2019re cheap.<\/p>\n + Third, laptops are not cars, or violins. You can get a good one for $2,000. In contrast this violin made by Enrico Rocca, Genova, 1898 is going on eBay for $325,000. More than a laptop. But not as useful as a laptop if you can’t play the thing. (Explanation: Harry is tone-deaf.)<\/p>\n I buy Lenovo ThinkPad X1 Carbon laptops because I like their keyboard and I have software I like that works only on Windows.<\/p>\n PC Magazine did a piece on X1 carbon versus the new fast Apple Macbook:<\/p>\n![\"\"](\"https:\/\/www.technologyinvestor.com\/wp-content\/uploads\/2022\/07\/SPCAfe-800x538.jpg\")
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