Leon Cooperman Sees Slim Odds of S&P 500 Revival

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  • Billionaire investor Leon Cooperman expects the US stock market’s troubles to persist in 2023.
  • “Anybody looking for a new bull market any time soon is looking the wrong way,” he said Friday.
  • There’s just a 5% chance the S&P 500 pares back losses logged since March 2022, he told CNBC.

US stocks will likely carry on struggling in 2023, meaning there’s no real reason for investors to be bullish right now, billionaire investor Leon Cooperman has warned.

“Equities were the best house in the financial-asset neighborhood, but I didn’t like the neighborhood,” Cooperman told CNBC’s “Closing Bell: Overtime” on Thursday. “And I still don’t like the neighborhood.”

“Anybody looking for a new bull market any time soon is looking the wrong way,” he added.

The chairman of the Omega Family Office shared his outlook for the S&P 500, which closed just over 1% lower at 3,808 points on Thursday.

The billionaire investor said he believes there’s a 45% chance the benchmark index falls below 3,600 points in 2023 and a 50% chance it ends the year between 3,600 and 4,400.

Cooperman thinks the chances of the S&P 500 rallying above 4,400 — the level it traded at when the Fed started its current rate-hiking cycle in March 2022 — are just 5% this year.

Stocks will struggle as long as the Fed sticks to its goal of bringing inflation down to 2%, Cooperman said. The latest US inflation data, the Consumer Price Index report for November, showed a rate of 7.1%.

“It really depends upon whether the Fed is going to try to shoot for 2% inflation,” the investor said. “If they go for 2% inflation, we have no idea how high rates have to go.”

He expects the Federal Reserve’s aggressive interest rate hikes to carry on weighing on US stocks this year, after a dismal 2022. Last year, the benchmark S&P 500 stock index fell 19% and the tech-heavy Nasdaq lost 32%, under pressure from that monetary policy and inflation running a four-decade highs.

The US central bank has raised the cost of borrowing from near-zero in March to around 4.5% currently, in a bid to tame inflation. Higher rates make holding cash in a savings account more attractive than investing it, which in turn drags on future cash flows at publicly listed companies.

The Fed’s major policy mistake came in 2021 rather than last year, Cooperman argued. That’s when policymakers kept interest rates low, because they believed post-pandemic high levels of inflation would be “transitory”. That failure to tighten the money spigot fueled bubbles in asset classes such as stocks, housing, and cryptocurrencies, many experts believe.

“You hear all this talk about interest rates and the Fed. That isn’t the problem,” Cooperman said. “The problem is that there’s a lack of confidence in the system because we’ve had these very foolish policies.”

“We’ve had the most speculative period in our financial history — SPACs, crypto, weekly and daily options, crazy valuations of the would-be FAANGs,” he added. “Going into a new bull market anytime soon makes no sense to me.”

Read more: Fed minutes and US jobs data might drive the first major market moves of 2023. Here’s what you need to know.

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