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As Long As Recession Holds Off, Expect the Market Melt-Up to Continue,” says ‘Big Short’ Investor Steve Eisman

While many eyes are on the Federal Reserve and its potential actions, renowned investor Steve Eisman remains optimistic. Even as economic pundits discuss the possible onset of a downturn, Eisman, portfolio manager at Neuberger Berman, doesn’t see signs of a recession on the horizon.

The lack of a looming recession suggests the market rally will persist, he believes. “So far, there’s no evidence of a recession. So as long as there’s no evidence of recession, I think the market will probably continue to melt up — people are chasing,” Eisman stated.

Famous for his accurate prediction of the 2008 housing crash, as depicted in “The Big Short,” Eisman said his firm remains fully invested with no plans to withdraw so long as the economy maintains its momentum.

Despite investor expectations of only one more Federal Reserve rate hike followed by a pause, Eisman points to the potential for further tightening, perhaps even three more rate hikes. However, he did note that Federal Reserve Chairman Jerome Powell may strike a dovish tone in his post-announcement comments, even if a hike does occur. “Powell will be dovish even when he wants to be hawkish. That just tends to be his personality,” he said.

As of late, numerous economists have weighed in on the potential for a “soft landing” for the economy, which could be buoyed by a slowing of inflation and the continued strength of the labor market. Additionally, a long-anticipated recession hasn’t yet materialized, partly due to corporate net interest payments falling despite the central bank’s hawkish stance.

The market strength has remained steady, with investors rallying around Big Tech companies that are capitalizing on advancements in artificial intelligence. Eisman believes these stocks will continue to see gains, as long as interest rates don’t climb too high, with investors seemingly unfazed by the high market prices.

While Eisman doesn’t see AI-related stocks as overvalued, he does anticipate a potential market correction and a broadening of the market in the future. “The bigger issue for me is that, at this point, AI mainly benefits a handful of very, very large companies,” he noted. “What’s going to be interesting over the next year or so is to see if it really broadens out to some middle-type companies.”