Big Short investor Steven Eisman expresses concern in an interview about the level of euphoria on Wall Street. He also expects the Fed to cut interest rates less than the market expects.
• Eisman: Market participants may be heading into the new year too bullish
• Big short investor expects significantly fewer interest rate cuts than the market is hoping for
• Top topics for 2024: Technology and infrastructure
The Big Short investor questions hopeful market sentiment
In an interview with CNBC, Big Short investor Steve Eisman questions the level of bullishness on Wall Street. A year ago the mood on the market was very different. Investors and experts expected a weak market environment and even a recession. However, the year developed positively. Ultimately, some records were even broken on the market by the end of the year. Now Eisman raises concerns that the market might be too bullish for the new year: “I don’t think we’re necessarily wrong about the economy, I think we’re probably right. I just think “That everyone is so optimistic going into the year that if there are disappointments, what will sustain the market?” From the enthusiasm for the “Magnificent Seven” technology stocks to the expectation of multiple interest rate cuts this year, Eisman believes there is simply little room for error.
Nevertheless, he is also bullish overall for the new year, as he explains to the US news channel. “In the long term, I’m still very optimistic. But in the short term, I’m just worried that everyone is having too good a start to the year.”
At the start of the new trading year, the market was actually somewhat weaker. The technology-heavy NASDAQ Composite recorded a decline of 1.63 percent, the S&P 500 lost 0.57 percent and the Dow Jones also recorded slight losses of 0.07 percent. Despite this decline, the major indexes had a historically strong previous year: The NASDAQ rose 43.42 percent, the S&P 500 gained 24.23 percent and the Dow posted a 13.70 percent increase in 2023.
Fewer interest rate cuts than expected
Eisman also points out that there could be fewer rate cuts this year than the market is currently expecting. “I actually think the market thinks the Fed will cut interest rates three times this year. I don’t agree with that view at the moment.” Eisman goes on to say that he believes the Fed is still afraid of making the mistake Volcker made in the early 1980s when he stopped raising interest rates and inflation spiraled out of control again. Overall, he is therefore not very optimistic that the Fed will lower interest rates. “If I’m the Fed and I look at the Volcker lesson, I say to myself, ‘What’s my rush?’ Inflation has taken hold,'” Eisman said. Nevertheless, the investor thinks that we should wait and see. “If you had to risk your life, I would say one [Senkung], unless there is a recession. “If there is no recession, I see no reason why the Fed should aggressively cut rates,” he explains. “If I’m in the chair of [Fed-Chef Jerome] If Powell were sitting there, I would pat myself on the back and say, ‘Good job’.”
Potential of housing stocks
Eisman is known, among other things, for predicting and profiting from the 2007-2008 housing market collapse, as CNBC reports. In the interview, the investor now explains that housing stocks are definitely justified. “The Real Estate Stocks are justified in that the house builders have excellent balance sheets. They are able to lower rates for their customers so they can afford to buy new homes. There is a shortage of new houses,” he explains. However, Eisman leaves this sector out of his top topics for 2024. Here he focuses particularly on the areas of technology and infrastructure.
Editorial team finanzen.net
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