On Thursday, September 18th, American hedge fund manager and billionaire David Tepper stated that the Federal Reserve (Fed) may further cut interest rates, but he cautioned that if the rate cuts are too aggressive, it could exacerbate inflation and bring about other risks to the economy and the already overvalued stock market.
Tepper expressed his views on CNBC’s program “Squawk Box,” saying, “If they cut too much on rates, it depends on the economic conditions… This will enter into a dangerous zone.”
On Wednesday, September 17th, the Fed cut interest rates by a quarter point, marking the first rate cut of the year, while suggesting two more cuts by the end of the year. Fed Chairman Powell referred to this rate cut as “risk management” rather than a measure to support a sluggish economy. Tepper expressed concerns that cutting rates before inflation is fully under control could lead to a faster rebound in demand than supply, causing prices to rise again. Additionally, overly loose monetary policy could attract investors to risky assets, leading to asset bubbles.
Tepper voiced, “My view is that cutting rates once, twice, or even three times is irrelevant because we are still in a somewhat restrictive range and inflation remains relatively high, so we should tighten slightly. Besides, with rate cuts, you really face a lot of risks, such as a weakening dollar and exacerbating inflation.”
As the founder and president of Appaloosa Management, Tepper pointed out that despite the current high valuations in the stock market, he wouldn’t bet against the market when the Fed adopts loose policies.
Tepper stated, “I don’t like the current price-to-earnings ratios, but how can I not hold stocks? I never go against the Fed, especially when the market tells me… they will cut rates one to three times by the end of the year. It’s really hard not to hold stocks.”
According to data from FactSet, a US financial data and software company, the expected price-to-earnings ratio of the S&P 500 index is close to 23 times, nearing its highest level since April 2021. Valuations of some large tech stocks have surged, with Nvidia’s price-to-earnings ratio at 30 times and Microsoft’s expected price-to-earnings ratio approaching 32 times.
Tepper remarked, “I am optimistic about the current loose policy, but I am also uneasy because stock market valuations are too high. Nothing is cheap now.”
Tepper, who is also the owner of the American football team Carolina Panthers, revealed that he has been holding Nvidia stocks. As of the end of June, Appaloosa Fund held approximately $277 million worth of Nvidia stocks, making it the seventh-largest holding in the fund.
(Translated and revised from the original article)