'Big Short' Investor Steve Eisman Fears 'Bubblicious' Stock Market If Fed Slashes Rates In 2024

Steve Eisman, the investor famous for his role in “The Big Short,” warned of a potential stock market bubble if the Federal Reserve decides to cut rates in 2024.

What Happened: Eisman expressed his concerns about the potential formation of a stock market bubble if the Fed proceeds with rate cuts this year in an interview with CNBC’s “Squawk Box” on Tuesday. He suggested that the current economy is performing well and does not require any rate adjustments.

“My view is the economy is fine. I personally think there should be no Fed cuts this year,” he said. “My actual fear is that if the Fed were actually to cut rates, the market becomes I guess bubblicious and then we have a real problem. So, you know, things are good. The Fed should do nothing and then wait for the data to get weak,” he added.

Eisman’s comments come after the Fed indicated potential rate cuts in March. He believes such a move could lead to a “bubblicious” market, posing a significant risk.

Despite the ongoing speculation about an equity market bubble, the S&P 500’s robust earnings growth from major tech companies has led to an increase in price targets for 2024. However, the potential impact of rate cuts on market performance has been somewhat overshadowed by recent inflation signals and ISM manufacturing data.

“There’s still a shortage of jobs, so the consumer is fine,” he said. “It’s a little bear’s porridge in a way, so why would you spoil it by lowering rates?”

“Maybe the hardest thing to do as a [portfolio manager] is to do nothing, because it’s so easy to actually do something. And it’s the same thing with the Fed. It’s so easy to do something, they could cut whatever they want to cut,” Eisman said.

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Why It Matters: Eisman’s warning adds to the ongoing debate about the possibility of a stock market bubble. Earlier this year, he raised concerns about the bullish market sentiments in 2024. His recent comments align with those of other market experts, such as Paul Dietrich, who have also warned of an impending market correction due to overvaluation.

However, not all analysts share this view. Experts suggested that the S&P 500’s current level is not indicative of a bubble but rather a strong market performance.

With the Fed’s potential rate cuts and their impact on the market being a key point of discussion, Eisman’s warning highlights the potential risks associated with such a move.

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