When Wall Street bigwigs say the market is overvalued — it’s time to “follow the smart money,” says Matt Maley, chief market strategist at Miller Tabak.
On Wednesday billionaire investor David Tepper said this was the second most overvalued market he’d seen outside of the 1999 bubble. The day before, hedge fund manager Stan Druckenmiller sounded the alarm on stock valuations.
“In Wall Street, it’s smart to follow the smart money ... when you have so many of them who’ve made their billions doing this, it makes me a little bit more cautious,” Maley told Yahoo Finance’s The First Trade.
Some of the recent billionaire comments prompted President Trump to tweet this:
When the so-called “rich guys” speak negatively about the market, you must always remember that some are betting big against it, and make a lot of money if it goes down. Then they go positive, get big publicity, and make it going up. They get you both ways. Barely legal?— Donald J. Trump (@realDonaldTrump) May 13, 2020
Maley says the markets have been trading as though the U.S. recovery from the economic fallout of the pandemic will be “V-shaped,” but Federal Reserve Chairman Jerome Powell’s recent outlook is a clear signal to investors.
“He basically confirmed that we're not going to have a V-shape recovery. A lot of people have been saying ... ‘Hey, I don't think we're really gonna have a V-shape recovery,’ but they've been investing like we were going to get one,” Maley said.
“Now they're sitting there saying, ‘Okay, we've got to go back to what we've really been thinking and maybe pull back a little bit,’ ” he added.
‘Vitally important that any fiscal stimulus we get, it moves away from handouts’
On Wednesday Powell said the road to a recovery may take some time to gain momentum and called for more fiscal measures to avoid long term damage to the economy.
“It's vitally important that any fiscal stimulus we get, it moves away from handouts,” said Maley.
“We have to have infrastructure programs, things that give people jobs. And so we need something more than just a bridge over the other three month valley. We need something that's going to give them a self sustaining income over a longer period of time,” he added.
Earlier this week, NYU Professor of market Scott Galloway told Yahoo Finance the best way to stimulate the economy is to put money in the hand of lower and middle income people who will spend it.
Galloway said, “The thing about lower income and middle income people is that you give [them] a $100 bucks, they spend a $100. You give a wealthy person a $100 bucks, they spend $20 and they spend $80 on Amazon stock.”
On Tuesday House Democrats put forth a bill to send out another stimulus check to millions of Americans, though unlikely to make it past some republicans.
Maley says the country needs a stimulus geared to create jobs so consumers can spend again.
“The economic problem is a health care one. We need to have that fixed, but we also need to have stimulus that helps people, the consumer, come back in a more meaningful than we're looking for right now,” said Maley. “ It comes down to employment.”
The latest U.S. Labor Department’s weekly jobless claims report shows another 2.981 million individuals filed for first time unemployment as COVID-19 has shuttered and scaled down businesses.
New data from the Fed released on Thursday shows job losses have hit low income families particularly hard.
Ines covers the U.S. stock market from the floor of the New York Exchange. Follow her on Twitter at @ines_ferre