Billionaire hedge fund investor David Tepper told CNBC on Wednesday the stock market is one of the most overpriced he’s ever seen, only behind 1999. His comments sent stocks to a session low.
He also said some Big Tech stocks like Amazon, Facebook and Alphabet may be “fully valued.”
Before Wednesday’s sell-off, it was “maybe the second-most overvalued stock market I’ve ever seen,” Tepper said on CNBC’s “Halftime Report.” “I would say ’99 was more overvalued.”
“The market is pretty high and the Fed has put a lot of money in here,” the founder of Appaloosa Management said. “There’s been different misallocation of capital in the markets. Certainly you are seeing pockets of that now in the stock market. The market is by anybody’s standard pretty full.”
The S&P 500’s forward price-earnings ratio based on estimates for the next 12 months has ballooned to above 20, a level not seen since 2002.
Stocks fell Wednesday with the Dow Jones Industrial Average dropping more than 500 points around midday. Still, the market has bounced back sharply from its March lows as investors have grown more hopeful about an eventual reopening of the economy. After tumbling into the fastest bear market ever two months ago, the S&P 500 has bounced more than 30% from that bottom and is now sitting about 13% below its record high from February.
Tepper’s calls often move the whole market. He did so again on Wednesday as the Dow hit its low for the session shortly after his warning.
“There might have been a bottom put in … but that doesn’t mean you can’t fall significantly from these levels,” Tepper said.
In recent days. the market was rallying despite a worsening profits outlook. Earnings for the S&P 500 companies are on track to fall 13.6% in the first quarter because of the coronavirus crisis, the worst quarter in nearly 11 years, according to FactSet. Profit forecasts painted a even gloomier picture for the rest of 2020, with analysts seeing a 40.6% drop in Q2, a 23% decline in Q3 and 11.4% in Q4 for the S&P 500, FactSet data showed.
The hedge fund manager said he has been “relatively conservative” in his positioning and remained “very guarded.” He revealed he currently holds about 10% to 15% long positions in equities.
Tepper also called some of the popular tech names including Amazon “fully valued.” Amazon has been one of the first companies to roar back to a new record after the coronavirus sell-off. The e-commerce giant is up 27% this year as investors bet on its resilient business.
“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.”
Subscribe to CNBC PRO for exclusive insights and analysis, and live business day programming from around the world.