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SPY: At What Level Will Leon Cooperman Reduce His Exposure?

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Jun. 21 2019, Updated 12:11 p.m. ET

Leon Cooperman 

Leon Cooperman, a billionaire investor and Omega Advisors’ chairman and CEO, talked to CNBC on June 20. Cooperman provided his take on the current stock market scenario. He warned that a big move in the stocks could mean “the close-out move.” On June 20, the S&P 500 (SPY) closed at 2,954—a new all-time high for the index after the Fed signaled a dovish stance going forward. Cooperman thinks that at the level of 3,100 in the near term, SPY would be “knocking on the door of euphoria.”

Under those circumstances, Cooperman acknowledged that he’ll be reducing his exposure. Currently, he’s enjoying the up move in the markets. Cooperman is 75% invested in the market with the rest in fixed income. He thinks that the Trump administration’s policies are pulling the demand forward.

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Is SPY expensive?

However, not everybody agrees with Cooperman’s assessment of the markets’ current valuation. At the end of May, RBC mentioned that a 10% correction in SPY is likely due to expensive valuations and slowdown concerns.

At 20x earnings, SPY’s valuations are already stretched compared to their long-term average of 15.75x. The cheaper interest rates have a lot to do with higher stock market valuations. For the markets to sustain the current multiples, there will need to be significant progress in corporate earnings. Currently, there’s an uphill battle with inflation running low, unemployment at an all-time low, and global conditions staying rough. As we discussed previously, J.P. Morgan has similar concerns. Read Trade Resolution, Easy Fed, and Growth Can’t Hold for Long to learn more.

Fund managers expect deterioration in corporate profits

In Fund Managers’ Allocations Point to Recessionary Conditions, we discussed that a net 41% of fund managers expect corporate profits to deteriorate over the next 12 months. The number reflected a fall of 40 percentage points—the largest one-month drop ever. Due to ongoing trade tensions, many companies including Broadcom (AVGO) have reduced their guidance. RF chips suppliers like Skyworks (SWKS) and Qorvo (QRVO), analog chipmakers like Texas Instruments (TXN) and Analog Devices, and memory chip makers like Micron (MU) and Western Digital (WDC) supply chips to Huawei. All of these companies are expected to take a direct hit from the Huawei ban, which could be reflected in their second-quarter earnings and guidance.

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