On Thursday, Leon Cooperman, a billionaire hedge fund manager, expressed concerns about Elizabeth Warren’s leftist thinking. He said that Warren could harm the economy and the stock market. Warren is a potential Democratic candidate for the presidential election in 2020. During the Delivering Alpha Conference, Leon Cooperman said, “They won’t open the stock market if Elizabeth Warren is the next president.” He expects a bear market and a fall of 25% if Warren wins.
Warren has purposed higher taxes on wealthy Americans. Earlier, Warren spoke to CNBC and said, “I want these billionaires to stop being freeloaders.” Her views are similar to President Barack Obama. The Obama administration increased taxes on wealthy people. President Trump ratified the measures by lowering tax rates. Leon Cooperman said, “You don’t make the poor people rich by making rich people poor.” Capitalism is the building block of the US economy.
Between November 7, 2012, and November 8, 2016, the S&P 500 Index (SPY) rose 53.4%. On November 7, 2012, President Obama was reelected. From November 9, 2016, to date, the equity index rose 39%. On November 9, 2016, President Trump won the election. There’s more than a year left in President Trump’s tenure. The GDP and unemployment conditions have improved significantly since the last election.
Wealth gap is rising
A report by the Federal Reserve Bank of St. Louis cited a significant increase in the wealth gap in the US. Between 1989 and 2016, the top 10% of income earners’ share rose to 50% from 42% on total income distribution. During this period, the total pre-tax income rose by $5.76 trillion. Both the bottom 50% and middle 50%–90% income earners’ share fell by 2 percentage points and 5 percentage points. The fall could be the main reason behind the rising popularity of socialism ideology in the US.
Cooperman’s views on market valuation
Leon Cooperman sees the market at a fair valuation. The S&P 500 Index is trading at a PE ratio of 20.63x. The 15-year average PE ratio is at 17.5x. The tech-heavy Nasdaq-100 Index’s (QQQ) PE ratio is at 24.29x. Nasdaq’s 15-year average PE ratio is at 23.14x. In 2018, the market capitalization as a percentage of the GDP was around 148%. A ratio greater than one is considered relatively overvalued.
First Data, Google (GOOGL), and United Continental Holdings were Omega Advisors’ top holdings in the second quarter. Together, the three stocks accounted for 24.2% of the total portfolio. Leon Cooperman is Omega Advisors’ founder and CEO. In the last quarter, the top five buys were Diamondback Energy, Wells Fargo, Carnival, Dow, and Navient. These stocks represent around 1.3%, 1.1%, 1.1%, 1.1% and 1% of the firm’s total portfolio. Except for Navient, the other stocks were the firm’s fresh buys. The outlook for oil and natural gas has been bearish for 2019—an important factor for Diamondback Energy. Interest rate reduction could impact US financial companies’ profits.