Fundamentals have put the stock market in a "sweet spot," but one factor could sour it, New York University's Aswath Damodaran said Tuesday.
Asked whether stocks were cheap, he said that valuations appeared reasonable.
"I don't know whether they're cheap, but I'm not surprised they're where they are right now because, in a sense, the market's in a sweet spot," Damodaran said.
On CNBC's "Fast Money," the Stern School of Business finance professor pointed to a positive environment for stocks.
"Things are looking good. Companies are returning record amounts in cash flows. I think if you look at the collective dividends and stock buybacks, last year's going to set a record," he said. "You have robust earnings growth without economic growth getting overheated. You have low interest rates, and risk premiums seem to be coming down."
But Damodaran saw a potential headwind down the road.
"One of my biggest worries is if economic growth comes back, that interest rates will go up, no matter what the Fed wants to believe it can do," he said. "We've learned in the last five years that the next macro crisis is right around the corner."
Damodaran noted the possibility that "rates could just explode out of the box."
"If it happens gradually over time, I think we're OK," he added. "But if it happens quickly in a few months, then I think this market might be in trouble."
Trader disclosure: On March 12, 2013, the following stocks and commodities mentioned or intended to be mentioned on CNBC's "Fast Money" were owned by the "Fast Money" traders: Stephen Weiss is long DKS; Stephen Weiss is long LCC; Stephen Weiss is long C; Michael Murphy is long BAC; Michael Murphy is long C; Michael Murphy is long GS; Joe Terranova is long VRTS; Joe Terranova is long SJM; Joe Terranova is long MJN; Joe Terranova is long AXP; Joe Terranova is long GPS; Joe Terranova is long KORS; Joe Terranova is long SWN; Joe Terranova is long GS; Joe Terranova is long SCCO; Joe Terranova is long PANW; Joe Terranova is long VSI; Brian Kelly is long S&P futures; Brian Kelly is long Gold futures; Brian Kelly is short Copper futures.