Early optimism about the economy may have been "misplaced," Dan Loeb's Third Point warned on Thursday, adding that key sectors were showing "bubblelicious valuations" and were poised for more volatility in the months ahead.
In a letter to investors obtained by CNBC, the hedge fund said Federal Reserve Chair Janet Yellen's statement on interest rates was a contributing factor behind the market's dour tone.
As events in Eastern Europe become more perilous and U.S. data has disappointed, investors have turned cautious and asset prices have suffered accordingly. Although the Dow Jones Industrial Average closed at a record high on Wednesday, a clutch of initial public offerings have either been postponed, or fallen sharply from their offering price.
The correction, however, was "healthy," Third Point said, adding that the economy was beginning to accelerate, after sustaining the dual punch of a particularly brutal winter and heightening rate hike expectations. As the second quarter cranks up, "it now seems evident that investment performance will require a combination of good stock selection, patience, and deft trading," it said.