Hedge fund legend David Tepper thinks the Federal Reserve did a good job, showing that policymakers are not asleep at the wheel.
The Appaloosa chief, known for bold calls and strong returns, told CNBC’s Scott Wapner on Thursday that despite the Fed moving up its interest rate hike timetable, the stock market remains alright.
“I think the stock market is still fine for now,” Tepper told Wapner.
Tepper thinks the Fed probably won’t start tapering its quantitative easing bond buying program until later this year, telling Wapner that when it happens it will be a good sign that the economy is in a really good spot.
Many investors and traders fear that when the Fed does cut back on QE, the stock market will decline, believing that such a move will be the start of central bank tightening and rates increases are not far behind.
Dow futures dropped modestly Thursday and then traded slightly lower at the open, one day after the 30-stock average closed off 265 points, or nearly 0.8%, as the Fed indicated two rate hikes in 2023. In March, they had expected no rates increases until at least 2024.
Central bankers Wednesday, as expected, left rates unchanged at their near 0% levels and made no mention of adjusting the Fed’s massive Covid-era bond-buying program.
Fed critics have been saying that policymakers are not acting quickly enough to stamp out rising inflation in an economy that’s recovering so strongly from the depths of the pandemic.
The Fed on Wednesday did rise its inflation estimate to 3.4%, a full percentage point higher than the March projection. However, the post-June meeting policy statement continued to maintain that inflation pressures are “transitory,” even as the most recent data on both wholesale and consumers prices showed inflation surging a pace not seen in more than a decade.
The 10-year Treasury yield bounced around Thursday morning, trading on either side of 1.56%. The 10-year yield, which moves inversely to price, was just below 1.5% moments before the Fed announcements.
About a week before the Fed’s March meeting, Tepper told CNBC’s Joe Kernen that it was very difficult to be bearish on stocks and he thought the sell-off in Treasurys that drove yields higher was likely over.
Three months later, he was right on both counts.
Bond yields, which went from under 1% in January to a series of 14-month highs above 1.7% in late March, have come down since then and have been struck in a trading range of late. In the stock market, the S&P 500 and Nasdaq closed at records Monday. As of Wednesday’s close, those benchmarks were still less than 1% away from those highs. The Dow was more than 2% away from its last record close in early May.
In another prescient call from Tepper — in February 2020, before stocks really began to collapse because of the pandemic, he warned the virus could be a game changer for markets. Tepper told CNBC’s Jim Cramer at the time that the coronavirus “certainly ruined the environment” for stocks that was in place a few weeks ago.
As CNBC pointed out in December 2019, Tepper’s huge prediction about the stock market in 2010 worked for investors for a decade. On “Squawk Box” on Sept. 24, 2010, two years after the collapse of Lehman Brothers in the 2008 financial crisis, Tepper took the old adage, “Don’t fight the Fed” to the next level. He said that U.S. central bank efforts to support the economy with near-zero rates and massive bond buying, known as quantitative easing, will make most investment choices go up.
The Fed-driven stock market rally that ensued became known as the “Tepper rally.”