The recent stock-market volatility “lacks common sense,” but legendary hedge fund manager Leon Cooperman, founder of Omega Advisors. sees the bull market charging higher.
"I think the machines seem to be taking over, which I have a very negative view of," the Omega Advisors chairman and CEO told CNBC.
He said the recent extreme market volatility is due to complex, automated quantitative and risk-parity trading, CNBC reported.
"It's scaring the public, and if the public gets scared, they leave the market. It's going to raise the cost of capital to business."
Cooperman said about 75 percent of daily trading today has nothing to do with fundamental investing, but is instead tied to high-frequency trading and "slicing and dicing of ETFs and things like that."
"In the world I grew up in, and the world Warren Buffett grew up in, when something went down you wanted to own more, and in the world that we're in now, it goes up you want to own more and it goes down you want to own less, and that's just counter-intuitive. It lacks common sense," he said.
"Even though I think the market is in a zone of fair valuation, I think the market is not in a position in my opinion to go down a lot, and I think that the path is still upward," he said.
Cooperman said he believes the economy is strong enough to absorb higher interest rates.
"I think the Fed's been somewhat irresponsible," he said, citing strong automobile sales and continuing employment growth. "There's no basis for zero rates."
The Fed has held its benchmark federal funds rate near zero since December 2008, but could raise it for the first time in more than nine years when the Federal Open Market Committee meets Sept. 16-17.
Cooperman also said bear markets don't "materialize out of immaculate conception," but because investors anticipate the onset of recession.
He said that at a recent gathering convened by Blackstone Advisory Partners' Byron Wien, not one of 21 distinguished guests saw a recession coming.
"Common stocks are in line with their historical norms, not overpriced, and you can find so many attractively priced stocks," he said. "I think stocks are still the most attractive house in the financial asset neighborhood."
But stocks are not cheap, he said, "I think the market's priced to give you a return in line with the growth in earnings. If earnings don't grow, the market's not going up."
U.S. stocks opened sharply higher Tuesday after a late rebound in China encouraged traders. The market was rebounding from a sharp sell-off on Friday when a mixed jobs report left investors uncertain about the outlook for interest rates, the AP reported. There was also some deal news for investors to focus on. Trading was closed in the U.S. on Monday in observance of the Labor Day holiday.
Investors remain confident the Fed will raise borrowing costs this year, even as they pare bets on policy makers deciding to do so at a meeting next week. Traders are pricing in a 30 percent chance the central bank will increase rates at this month’s gathering, down from 48 percent before China’s currency devaluation on Aug. 11. Odds of move at the December meeting are 59 percent, according to data compiled by Bloomberg.
“These next two weeks are very important — the Chinese market has reopened, we have FOMC next week, we may get some guidance from U.S. companies,” Pierre Mouton, who helps manage $8.3 billion at Notz, Stucki & Cie. in Geneva, told Bloomberg News.
“When it comes to the Chinese situation, it’s important that either you’re positive and think the government can handle the situation and everything will come back to normal, or you’re negative and think a downward spiral has started.”
(Newsmax wire services contributed to this report.)
© 2024 Newsmax Finance. All rights reserved.