What's in store for the U.S. economy and the stock market? No one knows for sure. However, that doesn't prevent people from expressing their opinions.
Some economists believe that the U.S. will be able to avoid an economic downturn. For example, in August Bank of America's chief U.S. economist Michael Gapen reversed course on an early forecast of a recession. Federal Reserve Board staff also changed their tune after previously expressing concern about a recession beginning in late 2023.
But there are some prominent investors with decidedly different views. Billionaires Bill Gross, Steve Cohen, and Leon Cooperman unabashedly predict a recession is coming.
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Billionaire birds of a feather
Gross earned the nickname "the Bond King" thanks to his massive success as a bond fund manager. He co-founded PIMCO in 1971 and stayed with the firm until 2014, when he joined Janus Henderson. Although Gross retired in 2019, he still actively watches the economy and the stock market.
On Oct. 23, Gross tweeted on X (the platform formerly known as Twitter), "Regional bank carnage and recent rise in auto delinquencies to long-term historical highs indicate U.S. economy slowing significantly." He added that there will be a recession in the fourth quarter of 2023.
Cohen founded the hedge fund Point72 Asset Management. He also owns Major League Baseball's New York Mets franchise. He has a similar view as Gross. At the Robin Hood Investors Conference last week, Cohen warned that the U.S. economy could slip into a recession before the year ends. However, he thinks that it will only be a short-lived downturn.
Omega Advisors chairman Leon Cooperman appears to be pretty much on the same page as Gross and Cohen, albeit with a slightly different timeline. He said on the Fox Business TV show The Claman Countdown on Oct. 25, "I think that we're going to get a recession probably sometime next year."
Cooperman acknowledged that the U.S. economy "is doing fine" right now. But he predicted that quantitative tightening (when central banks take steps to reduce money supply in an effort to combat inflation), oil prices, and the strong U.S. dollar could be factors in causing an economic downturn.
These three men aren't the only billionaires to express negative opinions about the direction of the economy. Tudor Investment hedge fund manager Paul Tudor Jones stated in October that the U.S. will probably enter into a recession in the first quarter of 2024.
What Gross, Cohen, and Cooperman are doing
Gross especially likes two types of investments in the face of a potential recession. He tweeted, "Best investments are equity arbs (CPRI and SGEN. VMW a long shot). I'm seriously considering regional banks again."
The "equity arbs" Gross referred to are stock arbitrage plays related to Capri Holdings, Seagen, and VMWare. Tapestry, which owns brands including Coach and Kate Spade, announced plans in August to acquire Capri for $57 per share -- roughly 12.5% higher than Capri's current share price. Pfizer wants to buy Seagen for $229 per share, which is nearly 7% above the current share price. Broadcom hopes to acquire VMWare for either $142.50 per share in cash or 0.252 shares of Broadcom stock.
Despite forecasting a near-term recession, Cohen remains generally optimistic about stocks. He thinks that the stock market will rise between 3% and 5% next year. At the end of the second quarter, his Point72 Asset Management fund owned a wide range of stocks, with Nvidia, Microsoft, and Amazon ranking as its largest holdings.
Cooperman seems to be the most pessimistic of the three billionaires. He expects that the S&P 500 will be "going nowhere for a very long time." However, he nonetheless likes some specific individual stocks. As of the end of Q2, Cooperman's Omega Advisors hedge fund was most heavily invested in Mr. Cooper Group, Energy Transfer, and Lithia Motors.
What should investors do?
Retail investors shouldn't blindly follow in the footsteps of these three billionaires. Neither should they automatically assume that Gross, Cohen, and Cooperman will be right that a recession is coming. Instead, arguably the best thing for investors to do is to emulate another billionaire -- Warren Buffett.
The Oracle of Omaha doesn't claim to know what will happen with the economy or the stock market over the near term. He simply focuses on buying the stocks of well-run companies when they're priced attractively. And he keeps plenty of cash on hand to take advantage of great buying opportunities when they arise.
Adhering to these two principles should put you in a good position to make money over the long run, regardless of what the U.S. economy does.
