Famed hedge fund manager David Einhorn has issued a warning for investors, saying he is anticipating that stocks will decline in the coming months as crude oil prices reverse higher.
Specifically, the CEO of Greenlight Capital said he is on a “buyer’s strike” right now and waiting for the market to drop in coming months before buying stocks again. Einhorn said that he is “worried about the direction of the market” and anticipating that equities will fall as crude prices rise. His warning comes despite the fact that oil prices are now back below $80 a barrel.
A Voice Investors Listen To
Einhorn, whose net worth is estimated at about $2 billion, is a prominent voice on Wall Street and someone that investors listen to whenever he speaks. Through the first nine months of this year, Greenlight Capital posted a return on invested capital of 28%, more than double the approximately 10% return of the benchmark S&P 500 index over the same period of time.
Even more impressive is the fact that Greenlight Capital posted a gain of 13% in this year’s third quarter at a time when the S&P 500 declined 3.3% and eventually fell into a correction, defined as a drop of 10% or more from recent highs. Einhorn achieved these impressive results through out-of-the-box stock picks such as Consol Energy (NYSE:CEIX) and fashion company Capri Holdings (NYSE:CPRI). The fact that Einhorn is now sounding a warning about the market has analysts and investors paying attention.
Geopolitical Risks
The main reason Einhorn says he is concerned about the market right now is the heightened level of geopolitical risk, particularly with war raging in the Middle East. This is the reason he also sees crude oil prices rising in coming months. “Current extreme levels of geopolitical tension will lead to lower stock prices,” wrote Einhorn in a letter to investors.
The hedge fund manager also raised concerns about a potential recession for the global economy in 2024. A development, he said, heightens the current risk profile for stocks. “It’s a tricky time and we remain worried about the direction of the market,” he wrote. Einhorn added that he has sold Capri Holdings. He is also cutting his exposure to other consumer stocks as he braces for an economic downturn, one that could be made worse if energy prices spike this winter.
What’s Next
Einhorn is the latest Wall Street titan to sound an alarm about the current state of the market. In recent days, Mike Wilson, the senior stock strategist at investment bank Morgan Stanley (NYSE:MS), called the current market upswing a “bear market rally.” Other investors, such a Michael Burry of “The Big Short” fame, have made sizable short bets on expectations that stocks will fall in the near term. Time will tell if the bears are right. But given Einhorn’s impressive track record, retail investors may want to proceed carefully.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
