Billionaire investor Leon Cooperman gave a bleak prognosis for the stock market, warning that future returns will be “unimpressive for a long time” and valuations are too high because the market has been “pulling a lot of demand forward,” he said in an interview with CNBC on Monday.
Cooperman warned that he sees signs of euphoria creeping into the market citing the SPAC and IPO boom as well as the “craziness in many of the stocks that the Robinhood crowd has latched onto.”
“The market has no margin of safety,” he said, adding that he expects valuations to eventually come down once investors realize that most of the gains this year can be credited to government support.
Although many on Wall Street have cheered low interest rates from the Federal Reserve, Cooperman reiterated that the central bank is only pursuing a policy of zero-interest rates because “things are bad in the economy.”
Too much of the current rally can be attributed to stimulus from the Federal Reserve and debt-fueled spending by Congress, he said, adding that by pulling so much demand forward, the market will likely see lackluster returns in the long run.
Among the biggest concerns for the market today, Cooperman said, are U.S.-China relations which have “soured badly,” a delayed fiscal package from Congress and a great deal of “uncertainty” around the upcoming presidential election.
He also criticized investors who bought up shares of Apple and Tesla after the companies announced stock splits: “Everybody understands that splits don’t create value,” Cooperman said.
“We came into 2020 with a full employed economy, yet we were running a trillion-dollar deficit,” Cooperman said. “And now we’re piling a lot of debt on top of that. And so I would have to say I have a conservative view,” he added.
Cooperman told CNBC that he’s not sure who he will vote for in the November presidential election, though he added that “this election, in my opinion, is pivotal in the [market’s] long-term outlook.” He explained why he remains undecided, describing Trump as “a man with limited character who has good economic ideas, but he’s very divisive in his dialogue.” On the other side, with Joe Biden, “we have a man of decent character who I’m not sure what he stands for.”
Cooperman has a net worth of $2.5 billion, according to Forbes’ estimates. A legend on Wall Street, he founded investment firm Omega Advisors in 1991 before turning it into a family office at the end of 2018.
The S&P 500 is up around 9% this year after hitting several new record highs and fully recoverings its losses from the coronavirus outbreak. The index is up by 7% this month alone, which would be its best August since 1984. Last week, the Dow Jones Industrial Average similarly turned positive for the year.
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