Daily Outlook

Wall Street Heavyweights: stocks are vastly overvalued

The biggest names in finance are coming around to a view that seemed unlikely a few weeks ago: Stocks are vastly overvalued.

Legendary investors Stan Druckenmiller and David Tepper were the latest to weigh in after a historic market rebound, saying the risk-reward of holding shares is the worst they’ve encountered in years. Druckenmiller on Tuesday called a V-shaped recovery — the idea the economy will quickly snap back as the coronavirus pandemic eases — a “fantasy.” Tepper said Wednesday that next to 1999, equities are overvalued the most he’s ever seen.

It’s a notion catching on among Wall Street money managers. And it’s coming as investors start to suspect that the Federal Reserve’s support, as well as $3 trillion in Treasury stimulus, may not be enough to compensate for soaring unemployment, a wave of bankruptcies and no end in sight to the pandemic. Managers including Bill Miller, Paul Singer and Paul Tudor Jones have all voiced doubts about markets or the economy.

Such bearishness starkly contrasts with the optimism that pushed the S&P 500 Index up 26% from its March low. And the warnings have caught the attention of President Donald Trump, who’s facing re-election and has seen his plans to run on a booming economy shredded by the virus. Trump attacked “so-called ‘rich guys’” in a tweet Wednesday.

“You must always remember that some are betting big against it, and make a lot of money if it goes down,” Trump wrote about the stock market. “Then they go positive, get big publicity, and make it going up. They get you both ways.”

His criticism is unlikely to sway Wall Street professionals. The S&P 500 Index is down 3.8% this week, and investors and economists are forecasting further declines amid a prolonged struggle to right the economy.

Federal Reserve Chair Jerome Powell, Trump’s pick for the job, outlined a doom-laden scenario with mass bankruptcies and unemployment in a speech delivered around the same time as the president’s tweet. Powell said policymakers may have to do more to prevent long-term damage to the economy.

Other marquee investors also have taken more defensive stances recently. Tudor Jones, who runs Tudor Investment Corp., told clients in early May he was investing in gold and had even put a small percentage of his firm’s assets in Bitcoin as he looked for havens. Meanwhile, Carl Icahn said in late April that he wasn’t buying stocks. Instead, he was hoarding cash and shorting commercial real estate.

Wall Street Heavyweights Are Sounding Alarm About Stock Prices, Bloomberg, May 14

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