Billionaire hedge fund investor David Tepper sounded quite pessimistic on the state of the stock market, telling CNBC on Wednesday the market is the most overvalued ever outside of the dot-com bubble.
Valuations on some stocks on the Nasdaq are “nuts,” Tepper said, noting that big tech names like Amazon (AMZN), Facebook (FB) and Google’s Alphabet (GOOG, GOOGL) may be “fully valued.”
“Just because Amazon is perfectly positioned doesn’t mean it’s not fully valued,” he said. “Google or Facebook…they are advertising companies. …They are not rich but they may be fully valued.”
Valuation-wise a simple statistical analysis, which will back Tepper’s market claims, would show that S&P 500′s forward P/E estimate has spiked to nearly 20 (down from 20.85 last quarter) for Q4/21, a level not seen in nearly 20 years.
Strong Notes of Pessimism
Tepper’s comments injected a pessimistic tone in a market that has bounced more than 30% since its March low on the basis of the coronavirus shock being containable and reversible.
It’s worth noting that the market rose on central bank liquidity injections and despite growing fears about the toll of the pandemic on global economic growth. In fact, earnings for the S&P 500 companies are projected to dip nearly 14% in Q1 because of the coronavirus crisis, according to FactSet, which paints an even gloomier picture for the rest of FY2020, with analysis suggesting a 40.6% earnings nosedive in Q2.
“The market is pretty high and the Fed’s put a lot of money in and it’s a question: have there been different misallocations of capital? Certainly you are seeing pockets of that now in the stock market,” the founder of Appaloosa Management said. The market “is by anybody’s standards pretty full,” he added.
Tepper also said that while “there might have been a bottom put in…that doesn’t mean you can’t fall significantly from these levels.”
As expected, his calls moved the market. The Dow hit its low for the session shortly after Tepper’s warning.
Tepper’s remarks echoed those of billionaires Carl Icahn and Stan Druckenmiller. Icahn said he is shorting commercial real estate as he prepares for the pandemic to wreak more havoc, while Druckenmiller said the risk-reward calculation for equities was the worst he’s seen in his career.