Finance
David Einhorn to speak as the priciest market in decades gets even pricier postelection
David Einhorn speaking in New York City on April 3, 2024.
Adam Jeffery | CNBC
Hedge fund investor David Einhorn’s cautious stance all year made his performance suffer as he navigated what he believes is the priciest stock market of his career at Greenlight Capital.
Einhorn’s hedge fund returned just 9% in 2024 through the end of the third quarter, net of fees and expenses. That compares with the S&P 500′s more than 20% gain during the same period.
The high-profile investor said he’s neither calling the market a bubble nor being outright bearish, but sky-high prices caused him to be conservatively positioned.
“The market isn’t just making all-time highs. It is, by many measures, the most expensive stock market that we have seen since the founding of Greenlight,” Einhorn said in the latest investor letter last month. Einhorn founded Greenlight in 1996.
Einhorn is speaking at CNBC’s Delivering Alpha Investor Summit on Wednesday in New York City. It will be the first chance for investors to hear from Einhorn postelection and whether his views on equity valuations and inflation have changed with the Trump and Republican policies on the way.
After a buyers’ strike at the end of 2023, Einhorn came back in the market hunting opportunities, acquiring medium-sized positions in names like software firm Alight and drugmaker Viatris. Investors will be interested to hear if he’s still finding any values.
Last month, he made a bullish case for Peloton, saying the shares are significantly undervalued.
Last third of the bull market?
These new stock picks didn’t necessarily create a ton of alpha, however. Greenlight was hurt this year by its low net exposure to the market and a lack of investments in the red-hot Magnificent 7 names.
“We are likely to continue to underperform a rising market, as we have all year, but we don’t wish to position ourselves to lose money should the market continue to rise,” he said in the letter. “We think Paul Tudor Jones is right when he says that managing the last third of a great bull or bear market move is often the toughest.”
S&P 500, 5 years
Meanwhile, he spent most of this year calling for a reacceleration in inflation, making gold a very large position in his portfolio. This bet has fared relatively well even as inflation has moderated with spot gold hitting a record high in late October, up 27% this year.
Einhorn, a 55-year-old Cornell grad, founded Greenlight Capital nearly three decades ago and went on to produce a whopping 26% annualized return for the next decade, far outpacing the broader market and many peers. He then thrived during the financial crisis, predicting the fall of Lehman Brothers. His stellar track record made him one of the most followed hedge fund managers on Wall Street. In recent years, he’s found some success purchasing value stocks that have buyback strategies in place.
Federal Reserve Chairman Jerome Powell said Thursday that strong U.S. economic growth will allow policymakers to take their time in deciding how far and how fast to lower interest rates.
“The economy is not sending any signals that we need to be in a hurry to lower rates,” Powell said in remarks for a speech to business leaders in Dallas. “The strength we are currently seeing in the economy gives us the ability to approach our decisions carefully.”
(Watch Powell’s remarkets live here.)
In an upbeat assessment of current conditions, the central bank leader called domestic growth “by far the best of any major economy in the world.”
Specifically, he said the labor market is holding up well despite disappointing job growth in October largely that he attributed to storm damage in the Southeast and labor strikes. Nonfarm payrolls increased by just 12,000 for the period.
Powell noted that the unemployment rate has been rising but has flattened out in recent months and remains low by historical standards.
On the question of inflation, he cited progress that has been “broad based,” noting that Fed officials expect it to continue to drift back towards the central bank’s 2% goal. Inflation data this week, though, showed a slight uptick in both consumer and producer prices, with 12-month rates pulling further away from the Fed mandate.
Still, Powell said the two indexes are indicating inflation by the Fed’s preferred measure at 2.3% in October, or 2.8% excluding food and energy.
“Inflation is running much closer to our 2 percent longer-run goal, but it is not there yet. We are committed to finishing the job,” said Powell, who noted that getting there could be “on a sometimes-bumpy path.”
The remarks come a week after the Federal Open Market Committee lowered the central bank’s benchmark borrowing rate by a quarter percentage point, pushing it down into a range between 4.5%-4.75%. That followed a half-point cut in September.
Powell has called the moves a recalibration of monetary policy that no longer needs to be focused primarily on stomping out inflation and now has a balanced aim at sustaining the labor market as well. Markets largely expect the Fed to continue with another quarter-point cut in December and then a few more in 2025.
However, Powell was noncommittal when it came to providing his own forecast. The Fed is seeking to guide its key rate down to a neutral setting that neither boosts nor inhibits growth, but is not sure what the end point will be.
“We are confident that with an appropriate recalibration of our policy stance, strength in the economy and the labor market can be maintained, with inflation moving sustainably down to 2 percent,” he said. “We are moving policy over time to a more neutral setting. But the path for getting there is not preset.”
The Fed also has been allowing proceeds from its bond holdings to roll off its mammoth balance sheet each month. There have been no indications of when that process might end.
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