US Treasury yields have risen rapidly this year, but billionaire investor Leon Cooperman thinks they’re still too low and said he’d choose stocks over bonds.
“I’d rather be in a common stock than I would be in a bond any day of the week, given the relative price of bonds versus equities,” the chairman and chief executive officer of Omega Family Office said in an interview with Bloomberg Television and Radio.
The Federal Reserve raised interest rates by 75 basis points during its June meeting, and a strong jobs report on Friday cleared the path for more rate hikes in upcoming meetings. Even so, Cooperman is “shocked that interest rates are as low as they are.”
“For most of my career, there was a real return associated with buying a bond,” he said. Now, with inflation at 8.6%, but the 10-year Treasury yield only around 3%, “it makes no sense, and that makes everything in the stock market look attractive,” he said.
It’ll be difficult for inflation to cool down given the tight labor market, according to Cooperman. “We’re in an environment where there’s much more demand for labor than there is supply -- that’s not an environment where prices go down,” he said.
But even though “equities are the best house in the financial asset neighborhood,” Cooperman sees room for them to fall further. He expects a recession to hit next year, during which the S&P 500 will find a bottom somewhere between 35% to 40% below its peak of around 4,800.
Among the headwinds stocks face, Cooperman said that a strong dollar is “negative for corporate profits.” One of Wall Street’s most vocal bears also said Sunday that the dollar’s rally will be a headwind for profits at many large US firms and another reason to expect lower earnings. Many firms have also been warning that this would impact their financial results.
Since the market has just been through “the most speculative period in our financial history,” with traders piling into technology stocks and blank-check companies, Cooperman said he “would be very, very surprised if we went into a new bull market anytime soon.”
--With assistance from Lisa Abramowicz and Kriti Gupta.
This article was provided by Bloomberg News.