Overpriced Stocks May Be Bubble Ready to Pop
Even if local and state governments hadn’t shut down businesses in attempts to mitigate the coronavirus, the U.S. economy was still set up to take on a number of economic challenges.
But now, there’s one additional challenge being considered by billionaire David Tepper: over-inflated stock prices:
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.”
If we take Mr. Tepper’s concern at face value, the U.S. could be on the verge of another major stock bubble explosion.
He did add that he thought stocks were even more overvalued in 1999, but of course time will tell if that ends up being true.
Tepper also had words of warning on the Fed’s recent infusion of liquidity into the markets, saying, “The market is pretty high and the Fed has put a lot of money in here… There’s been different misallocation of capital in the markets… The market is by anybody’s standard pretty full.”
If the market is “pretty full,” then good fundamentals can’t be in play. Another CNBC piece reinforced this observation by comparing 30 million unemployment claims to the still-rallying stock market:
Stocks, though, are rallying in the face of historically awful economic numbers, in a bet on higher profit margins and an aggressive recovery that seems increasingly risky.
At some point, profits and other business fundamentals have to justify a company’s stock price. Media hype alone can’t cut it for the long term.
This chart from the same CNBC article further reinforces the idea that fundamentals are not yet factored into stock prices:
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