Veteran hedge funder David Tepper is betting against the stock market as he expects global central banks to press on with unprecedented monetary tightening to rein in inflation.
The founder and president of hedge fund Appaloosa Management said Thursday in an interview with CNBC’s Squawk Box he is “leaning short on the equity markets” over concerns rising interest rates will further batter stocks. Tepper also said he’s short bonds.
“I think the upside/downside just doesn’t make sense to me when I have so many central banks telling me what they are going to do,” Tepper said. “Sometimes they tell you what they are going to do, and you have to believe them.”
A sell-off on Wall Street Thursday intensified in pre-market trading after Tepper’s comments, with the major averages falling to session lows. In late morning trade, the Nasdaq was down as much as 2.5%, while the S&P 500 was off more than 1.8%.
"This is a tough year to talk about robust returns [for the S&P 500], particularly when you have the Feds – plural – in such a tightening mode," Tepper, who is also the owner of the NFL's Carolina Panthers, said.
The billionaire hedge fund manager's remarks come one week after the U.S. Federal raised interest rates by half a percentage point to a range of 4.25%-4.5% — the seventh hike this year. The cumulative 4.25% increase in interest rates this year marked the most since 1980.
The European Central Bank, Bank of England, and other monetary authorities around the world also followed suit in tightening policy to stave off persistent price pressures.
Fed Chair Jerome Powell last week further hikes were likely coming in the new year, emphasizing the central bank would proceed with tightening financial conditions as long as needed to hit its inflation goal. The next day, European Central Bank President Christine Lagarde echoed Powell’s hawkishness following her own bank’s 0.50% increase.
“Anybody who thinks that this is a pivot for the ECB is wrong,” Lagarde said in a news conference. “We should expect to raise interest rates at a 50 basis-point pace for a period of time.”
Tepper indicated that labor force participation rates around the world of more than 55%, along with a shortage of immigrant labor in the U.S., have kept employment conditions tight, a continued force in driving up inflation. He also said that “mismatch” is not going away.
“It’s typical Econ 101 cost-push inflation, and I think other central banks around the world are worried about it,” Tepper said. “I think they’re worried about that inflation rate that’s going to be stubborn at 3.5%, 3.75%, 4%.”
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Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
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