S&P 500's fresh record high: Why this bear expects a correction

00:00 Josh Lipton

Barry, when I have bulls on the show, you won’t be surprised, they see it a bit differently. And I guess, Barry, broadly they’ll say, listen, Josh, Q2 earning season, they’ll say, it’s broadly solid. They’ll say, you know, Atlanta Fed GDP tracker, where are we here, Barry? 2.5. And they say, yes, the Fed’s cutting. They add that up, Barry, they say, what’s not to like. What’s wrong with that narrative?

00:58 Barry Ritholtz

Well, if you look at the core of GDP, and you know, you’re gonna get a lot of distortions with what’s going on in trade and inventories, net exports, and uh, and government, you know, I’m not so sure that the big beautiful bill was that stimulative, if you look at the $300 billion tariff, and you figure that the portion consumers have to absorb over time, not initially, but over time, is just gonna rise. Uh, it actually offsets some of the tax cut, uh, tax cut, the incremental cut, which was not that large versus what we had in the prior 2017 tax cut and jobs act. I think it’s $600 billion over 10 years, $60 billion a year, we’ll offset that with tariffs. Um, the part that goes to consumers. So, you know, bull market psychology is uh, is something I’ve seen off and on for many, many years. And uh, we’re in that kind of psychology now. It usually breaks suddenly, it rarely breaks slowly. And uh, so we’re seeing a number of risks in the back half, and I highlighted some of them, there’s there’s several more.

03:20 Josh Lipton

Barry, let’s put a number on it. So, if the SPX, S&P 500 is at 6466, where where do we head from here, Barry?

03:35 Barry Ritholtz

Well, we’re thinking it could uh, on a significant economic slowdown with the Fed pretty much battling with the White House, and I expect the last nine months or so of Powell’s term are going to be uh, um, you know, increasingly an outright war. Um, then what I think will happen is, uh, we’re looking at 5500 as a mid-teens correction for the S&P 500. Um, now, uh, you could uh, certainly see 5750, a fairly mild, 10% type correction. Uh, but that’s uh, where our numbers are coming at. And we we look at it a lot of different ways, some complex ways, um, such as economic profits versus enterprise value to invested capital, which is actually very close to where it was in late 1999 before that bust. Uh, so there are a number of risks that a overly bulled up uh, market, particularly the investors, retail, especially, um, that they’re not really cognizant of. I mean, if you think about the demographics of the market, all the people coming into it, you know, if it were that easy to go straight line and make money and quit your day job, then people would have done it a long time ago. Uh, it’s a very difficult market. It’s like uh, going down a mountain road with switchbacks and no guard rails. And so I just would caution people not to be overly bulled up if it’s cash that you need within the next year.