The US is going through a “textbook” financial crisis – and that means investors should expect sluggish returns for in the S&P 500 for a long time, according to billionaire investor Leon Cooperman.
In an interview with Bloomberg on Monday, the Omega Advisors CEO pointed to recent market volatility stemming from the failure of Silicon Valley Bank, which has shaken confidence in the US banking sector.
This week, First Republic Bank was downgraded for the second time by S&P Global further into junk territory, and Credit Suisse stock plummeted another 52% on Monday following the takeover by UBS announced over the weekend.
The Wall Street Journal reported that big banks were gearing up for yet another round of aid to First Republic just a week after 11 banks poured $30 billion of deposits into the struggling lender. Shares were down as much as 50% during Monday’s session.
“It’s kind of like textbook,” Cooperman said. “We have a self-induced crisis by irresponsible fiscal and monetary policy [over] the last decade. I did not forecast the [SVB] issue, but I did have a view that we were heading into a crisis of some kind, and we’re seeing it.”
Other market commentators have blamed the recent tumult on the Fed’s aggressive monetary policy, with central bankers having raised interest rates 1,700% over the last year to quell inflation. That’s one of the most aggressive tightening cycles the central bank has ever embarked on, putting an abrupt end to the prior decade of ultra-low interest rates and ample liquidity, with SVB being the latest casualty.
Fiscal policy is also causing problems, thanks to debt levels rising faster than the rate of economic growth in recent years, Cooperman said. His view echoes that of other bearish prognosticators like “Dr. Doom” Nouriel Roubini, who has warned rising debt could result in a 2008-style debt crisis to hit the economy.
Those conditions also mean tepid returns for stocks, Cooperman said.
“I think the 4,800 on the S&P will be a high that will stand for quite some time,” he said, referring to high reached in January 2022. “I expect returns in the S&P to be very pedestrian.”
Previously Cooperman said he saw a recession coming for the US economy later this year and warned that the S&P 500 could plunge to 3,100 in the near-term, implying a 22% fall from current levels. Other Wall Street analysts have predicted a similar free-fall, with Morgan Stanley’s chief stock strategist warning of a 26% drop for equities.
Source : MarketInsider
