Dan Niles thinks the stock market is headed lower. Maybe a lot lower.
A Stanford University–trained electrical engineer who once worked at the old minicomputer giant Digital Equipment, Niles has focused on tech stocks for more than 30 years, initially as a sell-side analyst at Robertson Stephens and Lehman Brothers. He moved to the buy side in 2004, and now runs the Satori Fund, a tech-focused hedge fund. It is in the black for the year, despite the
Nasdaq Composite’s
23% loss, due to nimble trading and some smart short sales.
Niles came into the year bearish, and his worries have only deepened. He thinks we’re headed for a recession, and sees the
S&P 500
index bottoming around 3,000—down 25% from here—or maybe lower. He details his grim view—and shares a few stock picks—in the edited interview below.
Barron’s: Dan, when we talked in late December about the outlook for 2022, you told me that your top pick was cash. “It will be a tough year for anything in tech,” you said. That was spot-on, but after the selloff we’ve seen, why are you still bearish?
Dan Niles: Coming into the year, we were focused on two things. The first was, we didn’t want to fight the Fed. And the second was, we didn’t want to fight the fundamentals. Coming into this year, our expectation was that the market would be down at least 20%. In May, we revised that forecast to down 30% to 50%, peak to trough, by sometime in 2023.
We thought inflation would pick up, and that, as a result, the Fed would be more aggressive than others were anticipating. Structurally, three things were in place to make inflation run hotter. The labor market had tightened, with the number of job openings, relative to the number of unemployed, at a record level. The second piece was commodity inflation. After the 2008-09 recession, people didn’t invest in capacity for commodities such as coal, oil, and copper. Our view was that if demand was going to be stronger than expected, commodity prices would rise. The final piece was that we thought…
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