'There's no reason to wait': Sell US stocks now before the S&P 500 tanks by over 20%, strategist says

• Exit the stock rally now as the S&P 500 index could tumble about 22%, according to the chief market strategist at FS Investments.
• The benchmark index is up about 8% so far in 2023 on hopes the Federal Reserve will soon end interest-rate increases.

The stock market is heading for a sharp setback that could see the S&P 500 plunge about 22% over the coming quarters, according to the chief market strategist at FS Investments.

That means investors shouldn't wait anymore to cash out on this year's rally in equities, and should start selling their holdings now, Troy Gayeski said during a recent episode of the "What Goes Up" podcast hosted by Bloomberg. "There's no reason to wait. It's not like you're going to leave 10% upside on the table," he said.

"First of all, the strongest rallies have always been in bear markets," Gayeski continued.

"Usually they're driven by technical factors. And then there's a narrative that's put together to justify it: the more recent one was that inflation's going to slow enough that the Fed won't have to hike anymore, and then we're going to have a recession and somehow that's going to cause the Fed to cut rapidly. But recessions aren't bad for revenue or earnings? It really makes very little sense," he added.

So far this year, the S&P 500 has advanced about 8%, largely driven by investor hopes that the Federal Reserve will ease up on its tight monetary policy - which is aimed at taming inflation - as it deals with turmoil in the US banking industry.

But like Gayeski, market experts including Jeremy Grantham and Morgan Stanley's top stock picker Mike Wilson don't expect the rally to last long. Wilson has warned the S&P 500 is set to tank over 20% later this year due to a looming earnings recession and the fallout from the banking tremors, per Bloomberg.

"We've always thought that this bear market would be meaningfully worse than the 2018 correction or some of the shocks we had in the post-Great Financial Crisis period, but not as bad as we had from 2002 and also the financial crisis," Gayeski said.

"This is a golden opportunity to use this bear market rally to de-risk in advance of potentially very painful losses over the next six, nine, 12 months," he added.