Key Points
- The chair and CEO of the Omega Family Office said investors have been too optimistic about the number of rate cuts the Federal Reserve will enact this year.
- Cooperman pointed out that the S&P 500 is now trading at 21 times forward earnings, which seems unsustainable.
Billionaire investor Leon Cooperman forecasts that the stock market and its hefty valuations could see losses this year, while long-duration Treasury yields could test higher again. “Everybody came into 2023 with a very negative view, and the market went up quite a bit. Everybody is now positive, and so my guess is that by the end of the year, maybe we will go down,” Cooperman said Tuesday on CNBC’s ” Squawk Box .” The chair and CEO of the Omega Family Office said investors have been too optimistic about the number of rate cuts the Federal Reserve will enact this year. He thinks the central bank may not slash short rates enough to satisfy investors. “I think the Fed will cut short rates, maybe two or three times. Forget the six times that the market was discounting, but I think the long end will go up,” Cooperman said. “The 10-year [at] 4%, 5% or higher would not be a big surprise.” The market’s momentum has eased lately as hopes for rate cuts pulled back. Federal Reserve Chair Jerome Powell said in late January that a March rate cut is unlikely , triggering the biggest daily loss since September for the S & P 500. Powell added to that sentiment in an interview aired Sunday on CBS’ “60 Minutes,” during which he indicated that the Fed would take a cautious approach on cuts. Cooperman pointed out that the S & P 500 is now trading at 21 times forward earnings, which seems unsustainable. The equity benchmark is up 3.6% year to date, following a 24% rally in 2023. “You see the market multiple 21 times. It seems too rich to me,” he said. Not a buyer of bonds Another factor that could drive long rates higher is the burgeoning U.S. fiscal deficits, Cooperman added. The U.S. government ran up another half a trillion dollars in red ink in the first quarter of its fiscal year. The jump in the deficit pushed total government debt past $34 trillion for the first time. “Given the amount of debt that we’re creating in the system, I wouldn’t be a buyer of government bonds at these levels,” Cooperman said. Another big investor, Paul Tudor Jones, on Monday said he agreed with Powell in thinking that the federal government is on an unsustainable fiscal path. Cooperman also charged that inflation is still too high despite the Fed’s series of aggressive rate hikes. However, he’s not expecting a recession this year. Inflation as measured through core personal consumption expenditures prices rose 2.9% in December from the prior year, the lowest since March 2021. “I think we’re going to have inflation,” Cooperman said. “I’m not calling for recession. We borrow for the future. That’s why the market has done so well. … I believe that one should have a cautious view.” Don’t miss these stories from CNBC PRO: Forget ‘FANG’ and ‘Magnificent 7,’ the new hot portfolio is ‘MnM,’ says Raymond James Walmart just split its stock. History shows what will happen next with the megacap Alibaba, ASML and more: Jefferies reveals its ‘highest-conviction’ stocks to buy — and one has 118% upside Tesla is one of the most oversold stocks in the S & P 500 and could be due for a bounce