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“ ‘I would say it’s one of the most overvalued, maybe the second-most overvalued I’ve ever seen’ as of Tuesday. ”
Add billionaire hedge-fund investor David Tepper to the list of big-time investors who aren’t enticed by the risk-reward picture presented by the U.S. stock market following its bounce off the March 23 lows. Tepper’s remarks, in an interview with CNBC, came after investing legend Stanley Druckenmiller late Tuesday called stocks the most overvalued he’s seen in his long career and lamented an unattractive risk-reward picture.
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Tepper, the founder of Appaloosa Management, said stocks were likely more overvalued in 1999-2000 during the height of the tech bubble. He acknowledged that the degree of the market’s climb from its March 23 lows was a surprise, a move he credited to aggressive monetary policy actions from the Federal Reserve and trillions of dollars in government spending approved in an effort to cushion the economy from the impact of the COVID-19 pandemic.
That Fed backstop remains and could lead to further gains, he said, “but it’s not a very good risk-reward market” scenario right now, he said. Tepper said he is positioned around 10% to 15% net long in equities.
Tepper is considered one of the world’s most successful hedge-fund managers and his remarks often are seen as driving short-term market moves. Forbes estimates Tepper’s net worth at $12 billion.
Stocks extended losses after Tepper spoke, with the Dow Jones Industrial Average DJIA, -2.33% falling more than 600 points at its session low. It was down around 500 points, or 2.1%, in recent trade, while the S&P 500 SPX, -2.16% was down 1.8%.
The rally has also created some pockets of misallocation in the market, without naming particular stocks, he said.
Tepper said the March 23 low likely will mark the bottom for the market if concerns are confined solely to dealing with the pandemic. Other considerations include the presidential election in November and what its outcome might mean for corporate tax rates, he said, while also warning that U.S.-China tensions need to be kept in check.
“I think in that respect, there might have been a bottom put in,” Tepper said, but added that “doesn’t mean you can’t fall significantly from these levels.”
