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David Tepper believes we’re in the biggest stock bubble since 1999

The Motley Fool logo The Motley Fool 13/05/2020 James Mickleboro
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The founder of Appaloosa Management believes the U.S. stock market is one of the most overpriced he’s ever seen.

On Wednesday David Tepper told CNBC that it is the second-most overvalued stock market he’s ever seen, behind only 1999.

According to the report, the S&P 500 is currently trading with a forward price to earnings ratio of over 20, which is a level not seen since 2002.

While this is of course the U.S. market, it has consequences for the local share market.

Most days the S&P/ASX 200 Index (ASX: XJO) will follow the lead of U.S. markets. If it were to pullback by 20%, it is very unlikely that the ASX 200 would not be dragged lower with it.

“Pretty full”.

Mr Tepper said: “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. Certainly you are seeing pockets of that now in the stock market. The market is by anybody’s standard pretty full.”

The hedge fund manager believes tech heavyweights Amazon, Facebook and Alphabet are potentially fully valued now.

“Just because Amazon is perfectly positioned doesn’t mean it’s not fully valued. Google or Facebook … they are advertising companies. …They are not rich but they may be fully valued,” he told CNBC.

In light of this, he has been conservative with his investments and currently holds only 10% to 15% long positions in equities.

Should you be concerned?

While I think that Tepper makes some fair points, I would argue that things are very different to 1999.

For a start, with rates close to zero, valuations are naturally higher than they would have been 20 years ago.

In addition to this, I suspect the market is expecting a swift recovery from this current crisis. So while it may look expensive on a forward 12-month basis, valuations look a little more reasonable the further out you go.

But that is of course if economies bounce back strongly. I’m optimistic that they will, but the next few months will be key.

In light of this, I would still be a buyer of these dirt cheap ASX shares which have crashed lower this year.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool’s board of directors. James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (C shares), Amazon, and Facebook and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool Australia has recommended Alphabet (C shares), Amazon, and Facebook. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post David Tepper believes we’re in the biggest stock bubble since 1999 appeared first on Motley Fool Australia.

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