Veteran trader and Thinkorswim founder Tom Sosnoff is a contrarian at heart.
The current trading conditions in the market have set off some internal alarm bells.
“It’s not that I think we’re in the midst of a comeback or a collapse or anything like that, but I think the market is favoring the possibility of a downside,” Sosnoff told me on Yahoo Finance’s opening bid.
Sosnoff added, “I think there’s a lot of stocks that are very fairly priced, and I know there’s not a lot else to invest in or anything like that. But I would just say, I think stocks are fully priced. I think if any downside momentum does occur, like what we saw last April — and I expect to see something similar this year probably in March, April or May — I think you’re going to get some serious selling, maybe down 10% 15%.”
In Sosnov’s view, the market has little room to absorb errors.
Wall Street is predicting a banner year for corporate earnings as they believe nearly everything from the economy to artificial intelligence productivity to geopolitics is going well. This optimism has pushed the S&P 500 (^GSPC) above 7,000 for the first time, and the Dow Jones Industrial Average (^DJI) is on the verge of crossing 50,000.
S&P 500 earnings are expected to grow by double-digit percentages in each quarter of 2026, according to FactSet data. Earnings growth is expected to be strongest in the fourth quarter, at 18.1%. Earnings this year are expected to rise 15%.
Meanwhile, the bottom-up strategist has a price target of 8,010 for the S&P 500, about 18% upside from current levels.
In turn, the S&P 500’s forward price-to-earnings ratio is 22 times, well above the 10-year average of 18.7 times. The stock’s valuation is almost as high as it was at its peak in early January 2022. What followed was the start of a nine-month bear market, with the benchmark index plunging about 19%.
However, the backdrop for the stock market is not perfect.
Federal Reserve Chairman Jerome Powell revealed Sunday night that the Justice Department had issued a grand jury subpoena to the Fed, threatening criminal prosecution over his testimony before the U.S. Senate. At issue: the central bank’s reported renovations to its Washington, D.C., headquarters and whether Powell misled Congress about the depth of the project.
In a video statement, Powell called the investigation “unprecedented” and questioned the motives for the move. The government has been outspoken about its desire to lower interest rates. Powell confirmed that he performed his duties as Fed chairman “without political fear or favor.”
Most investors have never seen the Fed and the president get into a heated battle in a public forum. While Trump has repeatedly attacked Powell since retaking the Oval Office, the latest news takes the situation to a whole new level.
Read more: How much control does the president have over the Fed and interest rates?
Professionals I spoke to said the row was not on their bingo cards and added to uncertainty in markets, especially the all-important bond market.
“First of all, I just want to say that I don’t agree with everything the Fed does,” JPMorgan Chase (JPM) CEO Jamie Dimon told reporters on a conference call after Tuesday’s earnings. “I do have a lot of respect for Jay Powell as a person. Everyone we know believes in the independence of the Fed, and so do we. Anything that weakens that is probably not a good idea. In my opinion, it will have the opposite effect. It will raise inflation expectations and potentially raise interest rates over time.”
Meanwhile, the December jobs report showed just 50,000 jobs were created, below consensus expectations of 70,000 jobs. More reports like this could dampen optimism about corporate earnings in the first half of 2026.
Kenny Polcari, chief market strategist at SlateStone Wealth, told me on Opening Bid that there is also no guarantee that the Fed will cut interest rates as many times as consensus expectations in the first half of this year. That’s partly due to cooling inflation, and with stocks at record levels, it’s hard to justify further rate cuts.
“Since the start of this rally, we have witnessed a steady build-up of bullish momentum across a broad range of market indicators,” the Sundial Capital Research team wrote in a new report. “Historical backtest data continues to make a compelling case for a continued uptrend. At the same time, the latest readings on sentiment and valuation indicators provide an important reminder for investors. Go with the trend, but don’t fall in love with it.”
Brian Sozzi is the executive editor of Yahoo Finance and a member of the Yahoo Finance editorial leadership team. Follow Sozzi on X @bryansozzi, Instagramand LinkedIn. Tips for the story? Email brian.sozzi@technology shoutfinance.com.
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