The rout in various asset markets at the hands of the Federal Reserve may not be over, warned former Wall Streeter and current Galaxy Digital CEO Mike Novogratz.
"The bear case is we've got two-to-six months left of this pain," Novogratz said on Yahoo Finance Live (video above). "The bull case is the market starts breaking. We're seeing a lot of breakage, not necessarily in crypto but in the rest of the world."
Novogratz, who began his career at Goldman Sachs in 1989, didn't rule out seeing the S&P 500 falling below the 3,300 level by the end of the year. The benchmark is currently hovering around 3,625.
“We’re in a mess globally,” Novogratz explained. “Once confidence breaks down, it’s really hard to get it back. ... It doesn’t feel to me like the stock market low is in.”
Novogratz's caution seems to be well-placed.
The Dow Jones Industrial Average (^DJI), S&P 500 (^GSPC), and Nasdaq Composite (^IXIC) remain mired in double-digit percentage declines for the year as the Federal Reserve aggressively raises interest rates to beat back inflation.
The tone in markets may not get much better into year-end, either, as a stronger U.S. dollar weighs on sentiment and companies use the coming earnings season to warn about future economic growth and stubbornly high costs.
In the third quarter, Wall Street analysts expect 3% year-over-year EPS growth for S&P 500 companies, 13% sales growth, and 75 basis points of margin contraction to 11.8%, according to data crunched by Goldman Sachs. Just several months ago, analysts were anticipating 10% EPS growth for S&P 500 companies in Q3.
Goldman Sachs echoed Novogratz's concerns in a new note this week, stated that the bank is staying "tactically" underweight stocks over the next three months amid a host of macroeconomic risks.
"A potential escalation of geopolitical risks as well as weak growth/inflation mix keep equity drawdown risk elevated — the September US CPI [Consumer Price Index] print this coming Thursday will be an important data point," Goldman Sachs strategist Cecilia Mariotti wrote. "With gasoline prices on the rise and until a broader set of macroeconomic data suggest more material weakness in the economy, we would generally lean against markets’ dovish repricing of the Fed. In our view, this is especially the case as so far investors’ hopes for a Fed pivot have not come alongside a material reset in front-end rates volatility, which remains elevated both in absolute terms and relative to equity."
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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