Hedge fund manager David Tepper has become a bit pessimistic on the stock market, pointing to uncertainties about interest rates and inflation.
"I don't think it's a great investment here," Tepper said on Friday in CNBC's "Mid-Term Report". "I just don't know how rates will behave next year … I don't think there are any great asset classes right now … I don't love stocks. I don't love bonds. I don't love junk bonds."
The Federal Reserve has anchored its short-term benchmark rate near zero since the pandemic began. Over the past few weeks, officials have signaled that they are ready to cut down on monthly asset purchases, possibly starting in November.
Many believe that soaring inflation, hovering near a 30-year high, could put pressure on the central bank to withdraw its ultra-loose monetary policy soon. Traders have increased their bets that the Fed will act faster than expected on rate hikes, with market prices implying an initial rate hike in September 2022, according to the CME's FedWatch tracker.
The founder of Appaloosa Management, whose comments are known to move the markets, said his hedge fund was "likely too conservative" this year but has fared OK because of its bets on commodities and oil.
"We kept that exposure relatively small, but kept investing. I think you will stay invested in the stock market to some extent, but you will not have the highest concentration you have ever had," said Tepper.
However, Tepper emphasized that the time to sell the stock market is still a long way off, and he still believes stocks are a great long-term investment that everyone in their portfolio should own.
The hedge fund manager said if bond yields remain stable after the Fed ends its bond-buying program, stocks could see a rally.
"If we sit here at 1.60% [on 10-year government bond yields] after the Fed announces a reduction in the tightening, then there could be a rally. There could be a trade rally. It could be 5% to 10% % rise. I go in and out, "said Tepper.
The billionaire investor has made a number of prescient calls recently, including the collapse of the market due to the Covid-19 pandemic. Back in February 2020, before the S&P 500 plunged into a bear market, he warned that the virus could transform markets and "certainly ruin the environment."
In March of this year, Tepper turned bullish in the market, saying it was very difficult to be bearish on stocks. The S&P 500 experienced seven positive months in a row from February to August. The benchmark is up more than 20% and hit a new all-time high on Friday.