Morgan Creek Capital CEO Mark Yusko, who has a bearish outlook for the year, told CNBC on Wednesday that the market is a rubber ball bouncing down the stairs toward a « bad place. »
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While each of the major U.S. indexes has gained about 10 percent year to date, the hedge-fund veteran foresees bad news on a number of fronts, including economic, earnings, revenue and corporate layoffs.
« I see lots of negative surprises, » Yusko said on « Power Lunch. » « I think there’s a lot of negative that’s gonna come over the next few months. »
He argued that Wall Street has been in a « bear market rally » since the Christmas Eve bottom.
« Each bounce is higher. That’s just kinetic energy, » he said. « But the end of the trip’s a bad place. »
One reason for Yusko’s pessimistic outlook is what he said are high stock valuations. He said equities are « 84 percent on average overvalued » and that downward inflation signals « economic weakness, not strength. » On top of that, earnings estimates — specifically in the tech sector — and housing have « absolutely collapsed, » Yusko said. He acknowledged, however, that jobs growth is strong.
Yusko predicted in November that securities would see a « double-digit drawdown. » He stuck with that sentiment on Wednesday by saying that stocks are as much as 50 percent away from « fair value. »
« Nothing has changed for the better since then except maybe, just maybe, the Fed’s not going to raise rates as quickly, » Yusko said. « So everything else has fallen off a cliff. »
There are still some opportunities Morgan Creek sees as worth investing in, such as master limited partnerships and what Yusko calls « CARBS » markets. Those include emerging markets in China, Argentina, Russia, Brazil and South Korea.
« So, there are lots of cheap places to put your capital. You don’t have to put it in the U.S., » he said.
Earlier this week hedge-fund manager Paul Tudor Jones said he expects the S&P 500 will outperform foreign markets. The Tudor Investment Corporation founder correctly called the 1987 crash but missed on his call that the market would surge to end 2018 on a high note.