MW Einhorn says it's the most expensive stock market since at least 1996

By Steve Goldstein

Buffett stock sales indicate now is not a great time to have a lot of equity exposure, Greenlight letter states

The S&P 500 index actually fell on Tuesday, but still managed to close at its second-best level in history.

David Einhorn, the hedge-fund star who co-founded Greenlight Capital, isn't thriving as the bull market turns three years of age. Greenlight's main hedge fund has returned 9% this year, which the firm in a shareholder letter released on Tuesday calls "fine" on a "beta-adjusted" basis, but doesn't "feel great" compared to the gains for the S&P 500 SPX.

The Greenlight letter says it is by many measures the most expensive stock market since the founding of the firm, which was in 1996. The firm points out that Warren Buffett has been among the best market timers the world has ever seen - closing a fund in the late 1960s, re-emerging near the market bottom in the early 1970s, selling many holdings ahead of the 1987 crash, capitalizing on the 2008 global financial crisis - and now has been in a selling mode.

"Our sense is that Mr. Buffett's portfolio adjustments are not a prediction that the market will fall next week, next month or even next quarter," the letter says. "Rather, these stock sales more likely express a long-term view that right now is not a great time to have a lot of equity exposure, and that the opportunity set is expected to be better at some point in the not-to-distant future," the firm says. While purposely not calling the market a bubble, the shareholder letter says the dividend yield is low and the price-to-equity ratio is elevated despite corporate earnings being cyclically high if not at the top of the cycle.

The Greenlight letter points out it's not just technology stocks with "nosebleed valuations" - pointing to mature, industrial businesses that trade for 30 to 50 times earnings. "We think Paul Tudor Jones is right when he says that managing the last third of a great bull or bear market move is often the toughest," the letter says.

The fund is not "outright bearish" but is likely to underperform a rising market, the shareholder letter said. Both its long and short positions rose less than the broader market, though its macro portfolio benefited from the sharp rise in the price of gold (GC00). Green Brick Partners (GRBK), the homebuilder which owns most of its land, was a significant winner for the firm, helping to offset a housing-related short which it says is structurally unprofitable and faces looming debt maturities.

The fund has established three new long positions it hasn't yet disclosed as it's still accumulating. It exited NeuBase Therapeutics - a "lottery ticket" that didn't hit - U.K. bank NatWest $(NWG)$, and Irish low-cost airline Ryanair $(RYAAY)$. "For some time, the post-COVID environment was favorable, allowing the company to raise prices and improve its earnings. Alas, that turned," the firm said of Ryanair.

The market

U.S. stock index futures (ES00) (NQ00) traded in a tight range early Wednesday. Gold (GC00) was approaching $2,700 an ounce. The pound $(GBPUSD.FOREX)$ slumped following slower-than-forecast U.K. inflation.

   Key asset performance                                                Last       5d      1m     YTD     1y 
   S&P 500                                                              5815.26    1.12%   3.21%  21.92%  32.98% 
   Nasdaq Composite                                                     18,315.59  0.73%   3.90%  22.01%  35.33% 
   10-year Treasury                                                     4.011      -5.80   30.60  13.01   -89.11 
   Gold                                                                 2694.7     2.61%   4.25%  30.07%  37.46% 
   Oil                                                                  70.38      -4.06%  1.78%  -1.33%  -19.23% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

Wednesday's earnings docket includes Morgan Stanley $(MS)$ and Abbott Laboratories $(ABT)$.

Interactive Brokers $(IBKR)$ earnings and revenue both missed analyst expectations. The stock heading into Tuesday had jumped 85% this year.

Novocure stock $(NVCR)$ jumped after the Food and Drug Administration approved the biotech's lung cancer treatment.

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The chart

Bank of America's monthly poll of global fund managers found the largest monthly rise in sentiment - calculated from cash levels, equity allocation and economic growth expectations - since June 2020. Its Bull & Bear Indicator, which triggers a sell signal when it reaches 8, climbed to 7.1 in October. There also was a record reduction in bond allocation, the survey found.

Top tickers

Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.

   Ticker  Security name 
   NVDA    Nvidia 
   TSLA    Tesla 
   DJT     Trump Media & Technology 
   GME     GameStop 
   ASML    ASML Holding 
   DRUG    Bright Minds Biosciences 
   TSM     Taiwan Semiconductor Manufacturing 
   AAPL    Apple 
   TPST    Tempest Therapeutics 
   PLTR    Palantir Technologies 

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-Steve Goldstein

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October 16, 2024 06:37 ET (10:37 GMT)

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