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David Tepper Warned of Higher Valuation in the S&P 500


May. 14 2020, Published 1:18 p.m. ET

Famous hedge fund manager David Tepper warned investors about a higher valuation in the stock market. During an interview with CNBC on May 13, Tepper highlighted that this market “may be the second-most overvalued stock market I’ve ever seen.”

On Wednesday, the S&P 500 Index declined 1.7% after Tepper’s comment. He also highlighted that the “market is pretty high.” He founded Appaloosa Management in 1993. Appaloosa Management is a popular hedge fund on Wall Street with an AUM (assets under management) worth $3.98 billion in the fourth quarter of 2019.

Currently, the S&P 500’s forward PE ratio is just above 20x. During the “sub-prime crisis,” the ratio fell below 12x. During the “dot-com” bubble crash, the ratio was just above 16x. Tepper meant that in the past stock market’s rout, the S&P 500’s forward PE ratio wasn’t so high.

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David Tepper on stocks

Stocks like Amazon (NASDAQ:AMZN), Facebook (NASDAQ:FB), and Alphabet (NASDAQ:GOOGL) could be “fully valued” based on Tepper’s statement. On a year-to-date basis, Amazon has risen 28.6%, while Facebook and Google are almost flat. 

Investors might be concerned if they have higher exposure to these stocks. For example, the Nasdaq Composite Index has a higher exposure to these stocks. Due to higher exposure to IT stocks, the Nasdaq outperformed major US equity indexes like the S&P 500 and the Dow Jones. To learn more, read Why the Dow Jones Might Be Painful for Investors in 2020.

Appaloosa Management’s top holdings

In the fourth quarter of 2019, Appaloosa Management’s top ten holdings accounted for 86.8% of its total portfolio of publicly traded securities. Alibaba Group (NASDAQ:BABA) was Appaloosa’s top buy in the fourth quarter of 2019. Appaloosa also doubled its holding in Alibaba on a sequential basis.

Amazon was Appaloosa’s third-largest holding in the fourth quarter of 2019. Alphabet and Facebook were Appaloosa’s biggest holdings. They accounted for 14.8% and 14.6%, respectively, of Appaloosa’s total portfolio. Based on David Tepper’s views, Appaloosa might have reduced its holdings on Amazon, Facebook, and Google in the first quarter of 2020.

Altbaba (NASDAQ:AABA) and Google were Appaloosa’s largest “sells” in the fourth quarter of 2019. The hedge fund also exited the SPDR S&P Oil & Gas Exploration & Production ETF. Due to weaker demand, WTI crude oil prices turned negative last month.


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