Sam Stovall, chief investment strategist at CFRA Research, joins CNBC's 'Squawk on the Street' to discuss market outlooks, odds of a recession, and more.

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Sam Stovall, chief investment strategist at CFRA Research, shared his perspective on the current market outlook during an appearance on CNBC's 'Squawk on the Street'. Stovall indicated that the recent market activity, characterized by a sharp decline followed by a broad recovery, suggests that the market is likely nearing a short-term bottom. Based on his analysis, Stovall believes that the current resistance level is approximately 5400 on the S&P 500, following a September retest anticipated in 2024.

Stovall expressed that investors are optimistic about behind-the-scenes negotiations and potential concessions from trading partners. Despite the current market turbulence, there are hopes that the situation might resemble past instances like 1998 or 2011, where markets experienced dislocations without leading into a recession. However, he acknowledged the probability of a recession has increased, now estimated at 40% according to CFRA's contracted economic projections.

Discussing potential scenarios, Stovall noted that if a recession were to occur, the median trailing 12-month price-to-earnings (P/E) ratio would be around 16.5, reflecting a 45% decline from February's peak. Such a decline would mirror significant downturns seen in the 1973-1975 and 2000-2002 bear markets, periods which took several years to recover from. He concluded that market sentiment has shifted, and positioning is being adjusted accordingly.



CFRA's Sam Stovall: Market likely close to near-term bottom

Chief Investment Strategist CFRA Research joins us now. Sam it's great to have you on. I love for you to help contextualize this just in terms of the tactical moment we are in. There's some signs yesterday overnight Sunday into yesterday we might have gotten a really big selling crescendo massive volumes massive number of new lows. And then today we have a very very broad snapback rally. These happen in in these highly I guess highly torqued markets. But where does that that bring us in your view. Hey Michael good to talk to you again. Well I think we really did see as you said that crescendo of selling that took place last week and in the beginning of trading activity yesterday especially the range the high and the low yesterday does basically indicate that we're probably close to at least a near term bottom. I think we probably have to go up to about the 5400 level on the S&P which would represent the September retest of 2024. So now that becomes resistance. But I think overall right now investors are anticipating that negotiations are taking place behind the scenes and that there will be some sort of concessions from our trading partners. The range of possibilities when we get one of these very very steep declines 15 plus percent. We got intraday below the 20 percent line. Whatever we're going to call it there's there is the possibility and the hopeful one is that this is sort of a 1998 or 2011 where the broader trend is fine. We don't have a recession right ahead of us. And it's much more about kind of a financial market dislocation or a shock. And we can move on from there. And then you have you know recession related and a lot of the markets are trying to maneuver in a direction that says maybe we have to raise our odds of recession. How do those things play out. What would you be looking for to have us know which one we're in for. Well I think you're right that the odds of recession have risen. Ours is now at 40 percent. We contract action economics for our economic projections. And speaking with Mike England this morning basically are looking at the fact that the N.B.E.R. the final arbiter of recessions would probably not say that it started in the first quarter of 2025 because there was an awful lot of purchases that took place in Q1 to try to get ahead of the liberation day or in early April. So Q1 GDP probably will not end up being negative or in that we probably might see some softness in Q2. But the N.B.E.R. would probably look at the old Arthur Okun adage of two successive quarters of GDP decline equal a recession. So they probably wouldn't be indicating such until the second or third quarter of this year. So the possibility of recession is out there. But when people started asking me gee how far would we have to fall to get to the median trailing 12 month gap P.A. ahead of recession since World War 2. That indicated to me that they were looking for worst case scenarios which I thought was a sign of extreme lack of confidence. No there's no doubt about it that the mood has changed and therefore possession positioning and sentiment. But you know just for for our own sake where would we have to fall to. What is that median P.E. that we would typically see at that moment. Well it would be about 16 and a half which would be a 45 percent decline from the February 19th high which certainly would put us into the range of the 1973 to 75 bear market 2000 to 2002 bear market. So those would be what I call mega meltdowns which typically take four to five years to get back to break even. Right. Yeah. All right. So we know what we don't prefer to see but appreciate you laying out the spectrum for us Sam. Thank you. My pleasure.

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