Billionaire investor Leon Cooperman is cautioning markets against underestimating the risk of a resurgence in inflation, warning that a repeat of the 1970s growth stock valuation shakeout could be on the horizon. Meanwhile, a telling historical signal is emerging in the bond market.
The billionaire investor, CEO of Omega Advisors and former Goldman Sachs executive, has once again sounded the alarm on the US economy and stock market. He predicts the US economy could slip into a recession within the next year, potentially dragging equities down with it.
In a CNBC interview, Cooperman drew parallels between the current market and historical boom-bust cycles, including the collapse of the "Nifty Fifty" stocks in the early 1970s. He suggested that optimism surrounding AI investments may also begin to cool. "I think we will have a recession sometime next year, and that could cause the market to decline," he said.
Cooperman also believes market expectations for S&P 500 earnings growth are off the mark. According to the latest FactSet data, the index's quarterly earnings are projected to rise more than 50% year-over-year, the highest level since the pandemic-era stock boom. His stance clearly diverges from the Wall Street consensus, as most forecasters remain bullish on AI demand and its associated investment returns. The Nasdaq 100 is up 19% this year, on track for a second straight year of double-digit gains.
Economic growth remains resilient for now, with Atlanta Fed economists projecting a 4.3% annualized GDP expansion for the third quarter. However, Cooperman argues that investors are overlooking the risk of reaccelerating inflation. Oil prices remain elevated following the Iran conflict, with Brent crude trading around $90 per barrel on Tuesday, still more than 20% above pre-war levels.
Consumer strain is already evident. US Commerce Department data shows July retail sales fell 0.6% month-over-month, far below the 0.1% growth expected. Cooperman contends that higher inflation could also hit stock valuations, pointing to the "Nifty Fifty" era when large-cap growth stocks eventually plunged after oil prices surged in the 1970s. "The most dangerous phrase in investing is: 'This time it's different,'" he remarked.
Cooperman said he holds a "negative" view on the overall market and is particularly avoiding tech stocks. He noted that while the market is currently almost universally bullish, investors could quickly dump stocks if a negative catalyst emerges. This is not his first warning; earlier this year, he told Fox Business that the current market shares similarities with historical bubbles and predicted a recession as early as late 2026.
Meanwhile, turbulent moves in the bond market are adding fresh pressure on US equities. Global bond markets saw a selloff on Tuesday, pushing major US indices down for a third consecutive session. Jonathan Krinsky, chief market technician at BTIG, told MarketWatch that the bond selloff could intensify based on technical patterns. The 30-year Treasury yield hit 5.33% on Tuesday, its highest level since June 2007, and has broken out of a three-year trading range since August.
"We think the stock market is not prepared for a rapid rise in long-end yields, such as the 30-year moving toward 6%," Krinsky said. Faster yield increases impact stocks in two ways: higher bond yields make fixed-income assets more attractive, potentially diverting capital away from equities, and they raise the discount rate used in valuation models, lowering theoretical stock values.
However, rising yields do not necessarily spell doom for stocks. Equities have climbed since late 2022 even as bond yields trended higher overall, though the S&P 500 correction in autumn 2023 coincided with a sharp yield spike. Krinsky believes the real concern is not just the absolute level of yields but the speed of their ascent. Data shows the 30-year yield was below 4.6% as recently as March.
Market account Oddstats notes that the only other time in history when the 30-year Treasury yield surged from around 4% to near 6% within six months was in June 1999. Less than four months later, the S&P 500 entered a correction; nine months after that, the index posted its final all-time high before entering a multi-year bear market as the dot-com bubble burst.
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