The Tell: David Tepper has a clear reason the stock market’s ‘Trump rally’ has room to run

Hedge-fund billionaire David Tepper says it is hard to bet against a rally in stocks that has been underpinned by President Donald Trump’s three-pronged campaign promises of deregulation, tax cuts and increased infrastructure spending.

Tepper, who manages one of the hedge-fund world’s more successful actively managed investment funds, Appaloosa Management, said there may be “very little to get in the way of” gains and pointed to plans to loosen Wall Street regulations as part of the catalyst behind what has been a torrid run to records for the Dow Jones Industrial Average DJIA, -0.02% S&P 500 index SPX, +0.08% and the Nasdaq Composite Index COMP, +0.29%  over the past several months.

Read: Tepper, Buffett join bullish chorus betting on unrelenting stock-market climb

“The day we had three Republican ‘houses’… that alone releases animal spirits,” Tepper said, referring to Republican Trump’s Oval Office victory over Democratic rival Hillary Clinton and both the House and Senate under GOP leadership.

“It is hard to go short when you say…when the punch bowl’s still full,” he told CNBC during a Wednesday morning interview.

Tepper said equity valuations may be pricey presently, but said a better economic environment across the globe has provided stock-market benchmarks purchase to climb higher.

“I don’t think the market’s cheap by any stretch…but look at the backdrop around the world…with the sugar that is still being put on by the [European Central Bank], the Bank of Japan…you can’t be short in that kinda set up,” he said. Tepper is referring to quantitative-easing measures that are still in use in the eurozone and Japan.

As far as the Federal Reserve is concerned, Tepper says the U.S. central bank run by Janet Yellen may be behind higher inflation risks and an improving U.S. economy. The Fed is widely expected to raise rates its two-day policy-setting meeting on March 14-15.

He said French elections in late April—with investors fearing that antiestablishment presidential candidate Marine Le Pen could win and pull France out of the eurozone—is one of the geopolitical scenes he is watching closely.

Government bonds

Asked if he was betting against government bonds, Tepper said: “You bet your hiney!” He is expecting a secular bull market in U.S. government bonds to end, pushing prices lower and yields higher. That said, Tepper says interest rates are still relatively low relative to historic averages.

The Fed, and in reaction, market rates, have “to go at a pretty quick pace not to get further behind,” Tepper said. “The question is should they be pricing in a fourth [Fed hike in 2017].”

The 10-year Treasury note TMUBMUSD10Y, +1.84% stood at 2.54% on Wednesday compared with 3% back in January, 2014, and more than 5% back in 2007, according to FactSet data.

So, can higher borrowing costs derail the stock market? Tepper says no.

“Higher rates will not be enough necessarily to take you down,” he told CNBC.

Tepper is best known for making concentrated bets in the aftermath of the financial crisis in 2009 on the financial system XLF, +1.09% astutely citing the backstop provided by the U.S. central bank as a reason to hold beaten-down bank shares.

According to recent public filings, Tepper has made a number of investments in the fourth quarter on drug companies, including Allergan PLC AGN, +0.05% and Pfizer Inc. PFE, -0.54% During his CNBC interview, he said he made those investments because those drug stocks looked fairly cheap.

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