Tepper: "The Market Looks Almost As Cheap As Coming Into 2017

The Dow Jones Industrial Average broke through 25,000 for the first time on Thursday as Winter Storm Grayson barreled into the Northeast. And as traders joked about buying Dow 30,000 hats, Appaloosa Management’s David Tepper appeared on CNBC for his biannual stock pumpfest.

And true to form, Tepper argued that equity valuations are reasonable, and that he “doesn’t see the overvaluation."

"Explain to me where this market is rich? It's not rich with the tax thing that just changed earnings projections. With earnings forecasts going up and interest rates where they are, how is this market expensive? I don't see the overvaluation. World growth is higher," Tepper said in a phone interview.

"There's no inflation. The market coming into this year doesn't look rich, in fact, it looks almost as cheap as coming into last year."

The Trump tax plan, which Trump signed into law late last year, will lop off 14 percentage points from the corporate tax rate, dropping it to 21% from 35%.

The billionaire investor's comments that the market is nearly as inexpensive as the beginning of 2017 is noteworthy since the S&P 500 rallied 19% last year.

 

Tepper said bond prices are the key indicator of whether the stock market can keep going higher. With the 10-year yield mired below 3%, Tepper says a selloff isn’t likely.

Of course, while the Trump tax cuts will start to boost corporate earnings – over time – forward P/E ratios, which factor in analysts expectations about the company’s performance, are looking notably stretched.

NOT "almost as cheap" as the start of 2017 after all...

1

The S&P 500’s price to sales ratio climbed in 12 months from 1.83 to 2.11, its highest level since just before the dot-com crash...

Forward P/E

 

Forward P/ETWO

Four days into the year, stocks have continued last year’s trend of nearly uninterrupted gains. Though some traders are beginning to get nervous, specifically because valuations are so stretched.

Tepper has often used his CNBC  appearances to talk up the market – even during periods when he was selling off large chunks of some of his biggest positions, as he did in late 2013.

This behavior is notable seeing as he had recently suggested that a 20x P/E multiple on the S&P was perfectly acceptable.