What The Rock's arms and the S&P 500 all have in common

Brian Sozzi · Executive Editor
9 min read

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Monday, February 14, 2022

On Super Bowl Sunday, there was Dwayne "The Rock" Johnson getting the Super Bowl started on the right foot as only he could.

Couple things stood out to me while The Great One was speaking:

1) He never trips up over his words on the mic, going back to his days with WWE.

2) Under Armour needs a bigger deal with The Rock (they signed him up for an apparel line in 2016).

3) His arms are huge, just like the valuation on the S&P 500 (yes, this is how I am always thinking).

While the S&P 500's valuation is big and bulky just like the The Rock's biceps, only one deserves to be deflated. Rest assured The Rock's fine arm specimens aren't what need deflating.

Nope, it's the stock market's valuation that warrants air being let out. To that end, enter big and brawny Wall Street.

On Monday, Goldman's chief U.S. equity strategist David Kostin slashed his 2022 year-end S&P 500 target to 4,900 from 5,100. This was to be expected after his colleague Jan Hatzius, Goldman's chief economist, raised his expectation for interest rate hikes this year to seven from five last week.

"Uncertainty abounds regarding the path of inflation and Fed policy. We believe two-sided risks exist to our baseline S&P 500 forecast, but with a larger downside tail," Kostin says.

Some of you will say, "Brian, Kostin's new target still assumes 11% upside from current levels." To that I say it doesn't matter in this cautious environment. It's more about the cut itself and what signal it sends to investors — Goldman Sachs is less bullish on stocks, and maybe it's time to get a little defensive.

I would expect more downgrade calls like Kostin's ahead of the Fed meeting next month, which could compound the geopolitical pressures now facing markets thanks to the Russia/Ukraine/U.S. situation. Inflation isn't decelerating. Corporate profit margins are under siege. Interest rates could be sharply higher before the summer.

All of that isn't a risk-on set-up.

"If you have something like seven increases in the Federal funds rate in 2022, price-to-earnings ratios are coming down, upside potential for the stock market is coming down. I don't know if we are talking 4,000 [for the S&P 500], but we are certainly talking lower than we are right now," said veteran market strategist Hugh Johnson on Yahoo Finance Live.

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