Investors dangerously ignoring bear market impact on earnings

Famed short seller Jim Chanos sees an alarming trend in the market.

“I’ve been on the Street [since] 1980 [and] not one bear market has ever traded above nine times to 14 times the previous peak earnings,” the Chanos & Co. founder told CNBC’s “Fast Money” on Monday.

His latest warning comes in the midst of earnings season, two days before the Federal Reserve decision on interest rates and four days before the key January employment report. According to Chanos, the market will not be able to overcome rising rates and falling corporate profitability.

“Things are not cheap,” said Chanos, who acknowledges stocks are still cheaper than 18 months ago. “But people are pricing in a pretty nice Goldilocks scenario.”

So far this year, the S&P 500 is up almost 5%, with media, technology and airlines leading the gains. On Tuesday, the index fell 1.3% to close at 4,017.77.

Chanos notes the market is anticipating corporate profits rising 12% this year, 2% inflation and a Fed rate cut within the next six to seven months.

“That’s pretty much nirvana if you’re a bull,” he said.

Chanos, who said he doesn’t try to time the market, doubts the bullish scenario will unfold.

“If you think earnings are peaking now at $200, that’s a long way down,” Chanos said. “That’s 1,800 to 2,800 [on the S&P 500]. We are not anywhere near that.”

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