(Bloomberg) — Not many industry experts would shrug off a 35% drop for the S&P 500, but six-decade Wall Street veteran George Ball says a fall of that magnitude would be a normal adjustment.

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Ball, chairman of Houston-based investment firm Sanders Morris Harris, predicts the S&P 500 will bottom at 3,100 from its all-time high of 4,796 in January. While he said the plummet will be uncomfortable, he doesn’t consider the outlook to be too grim, in part because of the huge gains the market racked up after the pandemic low.

“We all have the tendency to count down from the top and it doesn’t make any sense,” Ball said by phone. “It’s an erosion of gains rather than the accumulation of terrible losses. A decline to 3,100 is a fairly normal cyclical adjustment, wiping out excesses of both economic stimulus and in psychology.”

Throughout the easy-money era that made up much of the pandemic, valuation multiples had been as high as 24-times forward earnings. This year, however, sentiment has skewed lower and profit margins may be the next shoe to drop, he said. Corporate earnings will be a focus going forward, especially since analysts have been slow to revise forecasts meaningfully lower, Ball said.

“Analysts like to be liked,” he said. “Particularly during good times, they anticipate that management and companies will beat earnings estimates and so they inflate somewhat to lead the target.”

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Ball, who began his career as a stockbroker at E.F. Hutton, stepped down as chairman and chief executive officer of brokerage firm Prudential Bache Securities in 1991 after the firm lost roughly $300 million during his nearly nine years as head, according to the New York Times.

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The S&P Index is down more than 20% this year as the Federal Reserve aggressively raised interest rates to cool the hottest inflation in 40 years. The Fed’s more hawkish tightening path, combined with expectations for a downshift in earnings forecasts, factored into Ball’s lower S&P call.

“I believe that the Fed is going to be more steadfast in stomping out inflation than what is going to be politically popular and is going to be more steadfast than I and others had thought a month ago,” Ball said.

(Adds information on Ball’s role with Prudential Bache Securities)

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