Finance

David Tepper says the Fed has to cut rates at least two or three more times to keep credibility

Published

5 months ago

September 26, 2024

Business Finance News

David Tepper, founder and president of Appaloosa Management.

David Orrell | CNBC

Appaloosa Management’s David Tepper said investors should believe the Federal Reserve when it says it will lower interest rates because the central bank has now to keep credibility.

“You just read what these guys are saying,” Tepper said on CNBC’s “Squawk Box” Thursday. “Powell told you something… He told you some kind of recalibration. He has to follow through somewhat. I’m not that smart. I just read what they say and do they have conviction. They usually do what they say, especially when they have this level of conviction.”

The Fed last week sliced half a percentage point off benchmark rates, starting its first easing campaign in four years with an aggressive move despite a pretty stable economy. In addition to this reduction, the central bank indicated through its “dot plot” the equivalent of 50 more basis points of cuts by the end of the year.

Fed Chairman Jerome Powell said the cut was a “recalibration” for the central bank and did not commit to similar moves at each upcoming meeting.

“Probably two or three interest rates, 25 basis point cuts, they have to do, or they lose credibility,” Tepper said. “They’re going to do something besides the 50. You know, another 25, 25, 25 seems like it’s going to have to be done.” (1 basis point equals 0.01%)

‘I don’t love the U.S. markets’

Still, Tepper said the macro setup for U.S. stocks makes him nervous as the Fed eases monetary policy in a relatively solid economy like it did in the 1990s. The super-sized rate cut last week came despite most economic indicators looking fairly solid.

“It was around the 90s in that market where the where the Fed cut rates into Y2K in a good economy,” he said. “Rich in ’97 ….richer after long term credit, and bubble mania in ’99 early 2000 so I don’t love this. I’m a value guy.”

Gross domestic product has been rising steadily, and the Atlanta Fed is tracking 3% growth in the third quarter based on the resilience in consumer spending. Meanwhile, most gauges showed inflation is still well ahead of the Fed’s 2% target. However, there has been a slowdown in the labor market, which partly prompted the oversized rate reduction.

‘Sure as heck won’t be short’

The widely followed hedge fund manager said while the central bank’s move gave him hesitation, he certainly is not betting against U.S. equities because of the immediate benefits of easy policy.

“I don’t love the U.S. markets on a value standpoint, but I sure as heck won’t be short, because I would be nervous as heck about the setup with easy money everywhere, a relatively good economy,” Tepper said. “It would make me nervous, not to be somewhat long the U.S.”

Tepper, who is also the owner of National Football League’s Carolina Panthers team, revealed that he’s going all in on China on the back of a rate cut and a flood of support measures the government recently announced to shore up a flailing economy.

He added that he prefers Asian equities and European equities to U.S. stocks.

Finance

More traders turn bullish in first quarter, Schwab survey says

Published

7 minutes ago

February 25, 2025

Business Finance News

Traders work on the New York Stock Exchange (NYSE) floor on Feb. 20, 2025 in New York City.

Spencer Platt | Getty Images

An expensive stock market didn’t prevent traders from getting more bullish as investors increasingly bet that the bull run could keep chugging along, according to Charles Schwab’s new quarterly client survey.

The bulls continue to outnumber the bears among traders by 51% to 34%, said Schwab’s survey, which polled 1,040 active traders last month. Young traders under the age of 40 especially showed a spike in optimism, with bullishness jumping to 59%. That compares to 47% in the fourth quarter. The positive sentiment came even as two-thirds of the traders believe the market is overvalued, the survey said.

“It’s clear that the majority of traders believe there’s some froth in the market but on balance they also feel like there’s still more room for the bulls to run,” said James Kostulias, head of trading services at Charles Schwab. “More than half of traders plan to move additional money into stocks in Q1.”

While bullishness indicates positive views on the market, it can also be seen as a contrary indicator when there are signs of excess.

S&P 500

After a booming two-year period in which the S&P 500 climbed more than 50%, the momentum has slowed as of late with rising concerns about an economic slowdown and heightened volatility from rapid policy changes from the new administration. The equity benchmark is only up 1.3% on the year, while the tech-heavy Nasdaq Composite has dipped into negative territory for 2025.

In terms of sectors, traders are most bullish on energy, tech, finance and utilities. These sectors are typically beneficiaries under the Trump administration due to potential deregulation.

The survey also detected a significant drop in the number of traders who believe a recession will occur in the U.S. — only a third of the respondents called it “somewhat likely,” compared to 54% in the prior quarter.

The majority of traders also didn’t see a reacceleration in inflation, with two-thirds of them seeing price pressures holding steady.