It’s been a tough year for the stock market, but investors who are hoping that the worst is over could be in for a surprise, according to hedge fund manager Dan Niles. He believes the S & P 500 will see a Santa Claus rally before hitting a new low in 2023. “After having digested recent gains over the course of this past week which we expected, we believe the S & P 500 will then continue to rally through year-end,” the Satori Fund founder and senior portfolio manager told CNBC’s “Street Signs Asia” Friday. But he painted a grim picture for investors looking ahead. “Why are we bearish longer-term and believe the S & P will hit a new low in 2023?” Niles asked in notes to CNBC Friday. His answer: sticky inflation, earnings cuts, still-high valuations and expectations of further interest rate hikes ahead. He is also expecting the U.S. economy to fall into a recession in 2023. ‘Don’t fight the fundamentals’ Niles is no stranger to bear markets, and while many investors have been left deep in the red, he said the Satori Fund has outperformed. Niles said the U.S.-focused long-short equity fund is up this year, beating the S & P 500, which has declined around 17% in the same period. He did not disclose his fund’s exact performance. “Our fund is up for the year, up in December and is at its highs for the year today by having a long-term negative view on the S & P entering the year, but also by catching bear market rally opportunities like the most recent one from October,” Niles told CNBC. Key to its outperformance is the strategy of pairing short positions with long ones, Niles said. Shorting is a strategy where investors bet the price of a stock will fall. Conversely, investors take on long positions with the expectation that the stock will rise in value. Niles said his strategy was: “Be short something that we think is overly expensive, be long something that we think has gone down but has a fundamental reason to change, and then try to have those two things close. And I think that’s what you’re going to see later this year.” He also stressed that investors shouldn’t “fight the fundamentals.” “We have made money for the first 11 months of the year due to our shorts,” he said, adding that he believes earnings estimates can still fall another 20% from current levels as the economy hurtles toward a recession. The Satori Fund has short positions in tech stocks with advertising exposure, such as Google parent Alphabet . That’s amid looming competition from streaming services Disney and Netflix , which have announced plans to offer lower-priced subscription tiers that come with ads. While tech stocks have sold off deeply this year, it’s not all doom and gloom for the sector. Niles sees Meta Platforms and video gaming company Take-Two Interactive as potential opportunities within the space. He referred to “falling knife tech” — where values have rapidly dropped — as an area he could potentially pair with shorts in tech which have more downside risk “Also, a harder stance toward TikTok under a different U.S. government would help many of the U.S. social media names. Interest by larger tech companies in the gaming space should help set a floor for valuation,” he added.