Jeff Zelevansky/Reuters
- Leon Cooperman expects the S&P 500 to plunge 22% and the US economy to slump into recession.
- The billionaire investor warns the benchmark stock index could drop as low as 3,100 points.
- Cooperman predicts stubborn inflation and more rate hikes, and worries about the national debt.
Leon Cooperman has predicted the S&P 500 will plunge by about 22% before bottoming out, and warned the resilient US economy will eventually sink into a downturn.
"I'm assuming this all ends in a recession," the billionaire investor told Fox Business in a recent interview.
"I think QT, Fed tightening, the high price of oil, or maybe a strong dollar — some combination of these four things creates a recession, and the final bottom of the market will be about 35% below the 4,800 peak."
Cooperman's mention of "QT" refers to the Federal Reserve shrinking its balance sheet (quantitative tightening) to reduce the US money supply. The US central bank loaded up on bonds during the pandemic to inject liquidity into the economy and shore up growth (quantitative easing or QE).
Meanwhile, "Fed tightening" refers to the central bank's ongoing response to elevated inflation. The Fed has hiked interest rates from almost zero to upwards of 4.5% within the past year — and signaled further increases in the months ahead.
Higher rates incentivize saving over spending, investing, and hiring, and that means they can slow the pace of price increases. However, they can also sap demand, which pulls down asset prices and raises the risk of a recession.
Cooperman's comments suggest he expects a shrinking money supply, higher rates, and other factors to drive down the S&P 500 to around 3,100 points — more than a third below the benchmark index's peak of 4,800 points in January 2022.
Still, the billionaire investor — and former chief of Goldman Sachs' asset management division — noted a market downturn could throw up some great deals for bargain hunters.
"I'm not a bull, I'm not a bear. I'm like a buffalo who's finding a lot of cheap stocks," he said.
Cooperman, who converted his Omega Advisors hedge fund into a family office in 2018, also predicted elevated interest rates and stubborn inflation.
"The rates adjusted for inflation are still negative — you have to go positive before you stop the economy," he said. "I'm looking at higher rates, continued high inflation, and probably, regrettably, higher taxes."
Moreover, Cooperman sounded the alarm on the "shocking" amount of national debt, noting it has ballooned from $20 trillion in 2017 to over $31 trillion today.
"I'm expecting a crisis in public-sector finance," he said.