Stock-Market Rally Raises Concerns: Wall Street Strategist's Troubling Assessment

Piper Sandler's chief strategist, Michael Kantrowitz, warns that the stock market rally is becoming overvalued as investors ignore the risk of inflation. The rise in price multiples has fueled the rally of the S&P 500, but forward earnings estimates are not keeping pace, indicating that fundamentals will eventually catch up with investors. Kantrowitz points out that long-term earnings growth is at record-low levels, making the market more reliant on accessible liquidity. Based on the price-to-earnings-to-growth ratio (PEG ratio), stocks are more overvalued than during the dot-com bubble and the 2008 crisis. Kantrowitz's year-end price target for the S&P 500 suggests a 28% downside from current levels, as he expects negative returns in the second half of 2023 due to monetary policy lags impacting earnings and labor.