On a day when the market commentary of “big rich guy” investors has earned a public rebuke from the president himself, we suspect more than the usual number of viewers tuned in to hear David Tepper, the founder of hedge fund Appaloosa Management and owner of the Carolina Panthers, during a noontime interview on CNBC Wednesday.
Offering a wary market outlook, Tepper said that while he suspects the bottom might already be in, there are simply too many areas in this market that are way too overvalued, and the legendary trader predicted more chaotic trading ahead. And speaking specifically about the Nasdaq, which has been on a surprising tear as just a handful of tech stocks carry the entire market, Tepper said the overvaluations were some of the worst he’s seen since 1999, the heyday of the dotcom bubble.
Tepper even acknowledged that many of the tech stocks which he still holds – stocks with arguably the best earnings prospects post-crisis – are “fully valued”.
Stocks tumbled on Tepper’s comments as traders ignored the president’s advice to ignore rich Wall Street traders.
The main takeaway from Tepper is that while the “MAGA” stocks and smaller companies on the Nasdaq might have relatively sunny post-crisis prospects, the veteran trader believes that stocks are simply too overvalued in general to warrant buying pretty much anything right now.
Amazon is a perfect example.
“When you talk about Amazon…who isn’t using Amazon, of course they’re going to be a winner…” Tepper said.
But he added that while Peloton’s stock may be soaring, he’d still rather go for a walk on a day like today than ride a Peloton.
“The fact that those names may not be tremendously overvalued doesn’t mean they’re not [fully valued],” Tepper said.
“Amazon is a perfectly positioned company…that doesn’t mean it’s not fully valued here.”
As for Facebook and Google, “those are advertising companies” Tepper said. “They trade at a lower multiple.”
Investors need to be particularly careful about certain “smaller Nasdaq names” which Teppers said are “ridiculously” overvalued.
“People need to be very careful about some of these smaller Nasdaq names that are ridiculously overvalued…[like] in some cases, they’re the most overvalued I’ve seen since 1999.”
Tepper added that he’s soon too many investors trade on flawed analysis, or analysis that’s too short-sighted, or doesn’t carefully consider all of the factors.
“People have to be very careful and do analysis, I think in a lot of cases there isn’t very good analysis being done out there.”
While technology companies like Amazon might be “fully valued,” Tepper said that he believes there are certain industries, like banking, that investors should simply leave for dead, since the long-term interest rate outlook will make it virtually impossible for banks to make money.
“I’m not saying they’re tremendously overvalued but if the Fed keeps these rates at zero or near zero for multiple years…it’s a little tougher to make money for those companies,” Tepper said.
Asked directly whether he thinks the bottom is in, Tepper replied in the affirmative, but added that he expects more volatility from here on out. And over the long term, he warned, there are other factors that might compound the problems for the market, like the possibility that Trump loses to Biden…or the prospect of all-out war with China.
Because if this virus has taught us anything, it’s that investors ignore tail risk at their own peril.
And as the market digests Tepper’s nuanced point, we suspect Trump is cooking up another tweet to diss the owner of the Carolina Panthers, who also said he expects the NFL season will be held as planned, though the issue of whether/how many fans will be allowed in the stands still hasn’t been decided.