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As central banks around the world continued to send hawkish signals, David Tepper, founder and president of Appaloosa Management, was tilting bearish.
What Happened: Tepper didn’t expect the Federal Reserve to veer from its course of action anytime soon. As a result, he believed the risk/reward opportunity in the markets was skewed to the downside.
“I would probably say I’m leaning short on the equity markets right now. I think the upside/downside just doesn’t make sense to me when I have … so many central banks telling me what they’re going to do,” Tepper said Thursday on CNBC’s “Squawk Box.”
The billionaire hedge fund manager noted he was also short bonds. He has a small position in equities, but he can’t get past the valuations.
And, given the Fed’s aggressive response to inflation, it wasn’t clear what the multiple on the market should be, he said.
“It’s going to be just difficult for things to go up right now, I’ll say it that way, because of these banks and because of what they are saying,” Tepper said.
The market didn’t seem to be convinced the Fed will keep up the current pace of rate hikes, but Tepper didn’t have any reason to think otherwise, he said.
Last week, Fed Chair Jerome Powell acknowledged recent data was encouraging, but he indicated that it wasn’t enough.
“It will take substantially more evidence to get confidence that inflation is on a sustained downward path,” Powell said, noting the central bank will stay the course until the job was done.
Related Link: Fed Still Needs ‘Substantially More Evidence’ Following 0.5% Rate Hike — Experts React With ‘Famous Last Words’
Tepper told CNBC he was probably net long a few weeks ago before deciding to lean to the short side. He didn’t seem to have much confidence in the trajectory of markets near term.
“I have very small positions … in the equity markets because it’s that type of market. I think you have to be very careful as a hedge fund person,” Tepper said.
Yet central banks across the globe have forced his hand, he said.
“It’s unnatural for me because I’m an optimist so I have problems with it in some sense, but I’ll do it — I have to lean a little short,” Tepper said.
Tepper emphasized he was leaning short because he managed a hedge fund. Long-term investors should probably stay long, he said, but they might want to hold some cash or be a little less long than usual.
Central banks across the world “are going to keep rates high for a while,” Tepper said. “Don’t ignore what these guys are saying.”
SPY Price Action: The SPDR S&P 500 ETF Trust SPY is down 1.99% at $378.53 at time of publication, according to Benzinga Pro.
Photo: Chetiya Sahabandu from Flickr.
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Image and article originally from www.benzinga.com. Read the original article here.