Hedge fund Omega Advisors' Steven Einhorn expects U.S. stocks to move upward and easily outperform bonds in 2016 because the economy is nowhere near a recession and factors that typically herald the end of a bull market are nowhere in sight.
"I expect the Standard and Poor's 500 index to move higher in 2016, with a total return of 6 percent to 8 percent," including dividends, Omega's vice chairman said recently at the Reuters Global Investment Outlook Summit in New York.
Meanwhile, the S&P 500 is little changed this year after being jolted by fears of slower growth in China and worries about when the U.S. Federal Reserve may begin raising interest rates.
Omega, which was founded by Leon Cooperman in 1990 and oversees roughly $8 billion in assets, has long cheered the U.S. stock market. A year ago, Einhorn forecast a 7 percent to 9 percent gain for 2015.
What helped derail this year, he said, was "exaggerated" fear that slower growth in China might send the U.S. economy into recession.
Einhorn also pointed to investors' "obsessive" focus on when the Fed may move and whether rate hikes could choke off growth.
"Never has more paper been wasted on this one," he said.
With these headwinds easing, Einhorn said: "Investors will come to accept that we are in a long-lasting economic expansion in the United States combined with a friendly Federal Reserve."
While sharp stock declines like August's harm investor sentiment, Einhorn said fixed income "really does not provide an alternative," with half of U.S. blue-chip stocks throwing off higher dividends than the roughly 2.25 percent yield on the 10-year U.S. Treasury note. He said investors in 10-year notes and some corporate bonds might suffer capital losses in 2016.
Einhorn said factors that might signal a downturn in stocks would be "tight money" where the Fed "turns from friend to foe" to fight inflation; "the smell of recession"; "problematic inflation"; "speculative pricing" with inflated earnings multiples; and "investor exuberance" - none of which exist now.
"I don't think anyone today would define investors anywhere near exuberant," he said. "I would call it from dark to darker."
Einhorn also said he liked investment opportunities in Asia and Europe, noting that central banks in Tokyo and Frankfurt are expected to cut rates more this year, further fueling growth.
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