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Investor Steve Eisman of "The Big Short" fame is expressing his doubts about the level of optimism on Wall Street, even with the market's muted performance at the beginning of the year. Investors have exhibit a high level of enthusiasm for the so-called "Magnificent Seven" tech stocks, along with expectations for numerous interest rate reductions this year, yet Eisman is skeptical that a lack of problems can be sustained. The senior portfolio manager for Neuberger Berman told CNBC's "Fast Money" on Tuesday that, "Long term, I'm still very bullish. But near term I just worry that everybody is coming into the year feeling too good." On the opening day of the year, the Nasdaq dropped by 1.6%, while the S&P 500 was down by 0.6%, and the Dow edged out a gain. Despite the negative start, the indexes all ended the previous year with significant gains: the Nasdaq rose by 43%, the S&P 500 skyrocketed by 24%, and the Dow rose by 14%. Eisman commented on the situation, saying, "The market climbed a wall of worry the whole year. So, now here we are a year later, and everybody including me has a pretty benign view of the economy. It's just that everybody is coming into the year so bullish that if there are any disappointments, you know, what's going to hold the market up?"
Eisman fears that a lower number of rate hikes than anticipated this year could be a potential hindrance. The Federal Reserve is forecasting a reduction of three rates but fed funds futures suggest an even larger decrease. Eisman believes these expectations are too aggressive and he theorizes that the Federal Reserve could be scared of making the same mistake as former Fed Chief Paul Volcker did in the early 80s, when he ceased to raise rates and let inflation become uncontrollable. However, Eisman concedes that it is still a waiting game at this point. He concluded by saying, "If you had to lay your life on the line, I'd say one [cut] unless there's a recession. If there's no recession, I don't see any reason why the Fed needs to be aggressive at cutting rates. If I'm in [Fed chief Jerome] Powell's seat, I pat myself on the back and say 'job well done.'": CNBC owns the exclusive off-air broadcast rights to "Fast Money."
Eisman, who is famous for foreseeing the housing market crash of 2007-2008 and earning money from it, seems to be taking a liking to homebuilding stocks. The investor expressed in mid-October that he was avoiding the sector, yet the SPDR S&P Homebuilders ETF, which follows the sector, has increased by 25% since then and increased by 57% in the span of one year. He stated on "Fast Money": "The housing stocks are warranted in the sense that the homebuilders possess robust balance sheets. They can provide discounted rates to their customers, making it possible for them to purchase a new home. Furthermore, there is a lack of new homes in the market." Nevertheless, Eisman omitted housing from his top plays for the next four years. He was particularly enthusiastic about areas of technology and infrastructure.
Disclaimer: CNBC possesses exclusive off-air broadcast rights to "Fast Money."
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