Hedge fund manager David Neuhauser says markets look “artificially high” right now and are staging a bear market rally that won’t last. Neuhauser, founder and CIO of Livermore Partners, said the recent bounce was a technical rebound from the lows and does not mark a sustainable recovery in the markets. “I think you’re hitting the upper limits of this rally at this point, and I would expect it to fade here in the next few weeks,” he told CNBC’s “Squawk Box Europe” on Friday. Major US indexes have been in a bear market (or more than 20% from recent peaks) for much of this year, with the S&P posting its worst first half since 1970. In July, however, stocks have rallied and many on Wall Street have been debating whether the bear market is over. On Friday, the S&P 500 posted its fourth consecutive positive week, its longest weekly winning streak since November 2021. However, Neuhauser argued that it will be a temporary move higher. “I think ultimately, more than likely, we’re going to be in a bear market for quite some time. And I think the economy is going to go into recession — how deep, how far, how fast, it’s not certain.” Why Neuhauser is so bearish on the markets Neuhauser said the current market hasn’t been operating on fundamentals for a while, with “all the money that’s been pumping into the system.” Central banks around the world embarked on a campaign of ultra-loose monetary policy in response to the coronavirus pandemic, although many have tightened in recent months. As such, Neuhauser said the investment landscape had changed. “And I think until they really understand that shift, the markets are going to be pretty limited.” The US Federal Reserve launched its second consecutive hike of 0.75 percentage points in July. And Neuhauser said he doesn’t “see them taking their foot off the gas,” with policymakers “only halfway to where they need to be.” With interest rates set to rise, the increased cost of borrowing will hit some weaker businesses, according to Neuhauser. “Valuations will ultimately move back down near the lows of the move,” he added. “And I think it’s just going to create a much more challenging backdrop, not just for the next few months either. I think that’s going to continue for years to come.” How to position Livermore Partners is “heavily invested” in commodities and in particular energy. “We still think it’s been the one sector that’s been the right call because it’s been underinvested, there’s been structural issues in terms of supply, strong demand and prices are very high,” he told CNBC . Oil prices soared last year amid a broad rally in most commodities and surged after the war between Russia and Ukraine. Crude oil prices recently dipped below $100 a barrel, but remain more than 40% higher than a year ago. On the other hand, Neuhauser said he has been bearish on tech stocks for the past two years and that it was “the right call.” course
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