S&P 500 futures are crashing once again on Sunday night. As of 8 p.m. ET, S&P 500 futures are down about 4%.
Before today, global stocks had already lost $7.46 trillion since April 2nd. After tonight’s sell-off, the total loss will likely exceed $10 trillion.
Could things possibly get worse? Well, on CNBC Jim Cramer predicted the S&P 500 could lose another 20% plus from the bloodbath we’ve already seen. Let’s dig into what Cramer said and whether it’s realistic.
Cramer Predicts A New ‘Black Monday’
Tonight on CNBC, Cramer said:
“I want to see where things settle in… tomorrow is not the bottom because Europe hasn’t been heard from yet. S&P 4000 is where I’m looking”
Cramer has been sounding the alarms in recent days. He’s created a meme out of ‘Black Monday,” predicting a sell-off that could rival 1987’s crash.
The ‘Black Monday Crash’ in 1987 was one of the biggest sell-offs in history, with the Dow Jones dropping 22.6%. That’s significantly worse than futures are currently pointing to (the S&P 500 is down about 4%), but across the past three days since tariffs were announced, if you include tonight’s futures loss, we are down 15% in three trading days.
What Would the S&P at 4000 Look Like?
While we’re still a long way from a ‘Black Monday’ that could see 22% losses, Cramer’s prediction of the S&P 500 hitting 4000 is worth examining.
When was the last time the S&P 500 traded under 4000? The answer isn’t as far back as you might think; it’s May 2023. Yet, the S&P 500 also first broke 4000 in March 2021, meaning that if the S&P 500 were to retrench to 4000, it would be close to flat over five years.
In historical terms, a five-year timeframe of zero returns is an extremely poor era of returns.
More practically, we could look at what S&P 500 earnings look like. Recently, Wall Street estimates placed the S&P 500’s 2025 earnings at about $280. We can do some math on this number:
- Trading at 5000, the S&P 500 would be valued at 17.8X earnings if this year saw earnings of $280
- Trading at 4000, the S&P 500 would be valued at 14.3X earnings if this year saw earnings of $280
The S&P 500 trading at 14.3X wouldn’t be without precedent, but it would also be an extremely cheap ratio relative to recent multiples.
Yet, it’s very likely the S&P 500 won’t produce earnings of $280 this year. Recession odds now stand at roughly 60%, and many companies are pulling back on spending. Also, if tariffs stand, many companies could see a significant hit to profits.
How big of a hit might this be? On average, in recessions, corporate earnings drop about 13%. From this perspective, you could see how S&P 500 earnings come in significantly below expectations this year.
Let’s say S&P earnings went as low as $240 this year, on that number, the S&P 500 trading at 4000 would be a 17X multiple. Does that seem out of reason? It’s definitely not crazy.
I’m Ready to Step in and Buy
All this being said, I plan to buy stock this week if current selling pressure remains. Many stocks with incredible promise in trends like AI that face cyclical pressures have been absolutely pounded.
I won’t make those the majority of my buys, but I will add some. Beyond all this, buying at times of extreme selling almost universally has led to great returns if your time horizon is longer than a few years. While I believe the market could go lower if Trump wants to continue digging in on tariffs, I’m also confident there are more reasons to be optimistic than pessimistic across the coming years once the dust has settled on this tariff standoff.
I could see how Cramer could be right and the S&P 500 hitting 4000 isn’t crazy, but I also think if the market is down massively early this week, anyone buying is going to be very happy with the results when we look back at this moment in a few years.
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