Billionaire global investor Barry Sternlicht said Thursday he’s concerned about the long-term viability of current conditions in the stock market, warning that some aspects feel reminiscent of the dot-com bubble in the 1990s.
“I don’t think we’re having a problem in the stock market near term,” Sternlicht said on “Squawk Box.” “The stimulus is too big.”
After the market plunged due to Covid fears in February and March of last year, the Federal Reserve slashed interest rates to near zero and unleashed other programs to support the financial system. Congress also pushed through two massive stimulus packages in 2020, with Wall Street hoping for another one this year.
As of Wednesday’s close, the Nasdaq was up more than 100% since its pandemic-driven low on March 23. The S&P 500 was up about 75% in that same span. The Nasdaq, the S&P 500 and the Dow Jones Industrial Average all closed at record highs Wednesday as President Joe Biden took office.
However, the Starwood Capital CEO urged investors to watch out “come the back half of this year,” citing worrisome characteristics such as investors who appear to be leaning on social media sites for stock ideas and contributing to short squeezes. It’s a development that CNBC’s Jim Cramer also has spoken about, including recently in response to the surge in GameStop shares.
“The dark underside of this market is kids — and I don’t know if they’re kids, we just call them kids because we think they’re less experienced — staying at home and day trading and buying stocks,” Sternlicht said. “I keep reminding my youngins, ‘Kids, one thing about getting older is you’ve seen it all before.’ … It feels a lot like 1999 to me.”
Highly speculative internet stocks helped propel the tech-dominated Nasdaq up more than 500% from 1995 until the bubble burst in March 2000. The index had traded above 5,000 before it then tumbled by nearly 80% to a multidecade low of 1,108 in October 2002.
“I think people should exercise caution and be careful not to be so levered long to this equity market right now,” said Sternlicht, who in 1991 founded Starwood Capital, which focuses on global real estate, hotel management, and the oil and gas sectors and energy infrastructure. It also created Starwood Hotels & Resorts, which was later acquired by Marriott.
The manner in which some newly public companies have been trading also raises concerns, Sternlicht said. “There are companies that are trading like bitcoin. They’re just going up and up and up, and they read about it on some social media platform, and they just keep buying it.”
Sternlicht — who recently filed to create his third special purpose acquisition company, a trend that exploded in popularity in 2020 — acknowledged investors should be more discerning about which SPACs they get behind, contending some are overhyped.
“I’m just watching and astonished. You know, companies that I passed on for $5 billion trading at $20 billion market caps with 1% gross margins and completely undefendable businesses with new competitors taking their lunch,” he said. “People are buying names. I don’t know who it is.”
However, he said traditional initial public offerings are not above the fray of worry, either.
There are ” bad companies that are going public and quadrupling,” Sternlicht said. “It’s funny. I’ll talk to the [venture capitalists] and they’ll say, ‘Oh, the company isn’t worth that.’ They go public, and their stock goes up sixfold in two months. It’s not a SPAC [thing only]. It’s the same thing across the market.”
