Elections

Wall Street doesn’t see Donald Trump's ‘big, fat, ugly’ market bubble

It all comes down to housing: Tom Lee
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It all comes down to housing: Tom Lee

Donald Trump again warned of a stock market bubble during the first presidential debate, but financial professionals on Tuesday told CNBC they don't buy it.

"Believe me, we are in a bubble right now, and the only thing that looks good is the stock market, but if you raise interest rates even a little bit, that's going to come crashing down. We are in a big, fat, ugly bubble," the Republican presidential nominee said Monday night.

Trump suggested that bubble would pop after President Barack Obama leaves office because the Federal Reserve is "doing political things." He has previously said the Fed, an independent government agency with a mandate to promote maximum employment and price stability through monetary policy, is keeping rates low at Obama's behest.

Fed Chair Janet Yellen said this month that partisan politics play no role in the central bank's decision-making. The Fed had signaled it would raise rates four times this year, but has left its easy money policy unchanged amid concerns about slowing labor market gains, shocks from overseas, and inflation that remains below policymakers' target.

Tom Lee, co-founder and head of research at Fundstrat Global Advisors, said central banks have always played an important role in the economy and the business cycle.

"I don't think it's created a bubble. I think it's very scary to hear a presidential candidate, though, say … that he's going to inherit a huge bubble," he told CNBC's "Squawk Box."

In his view, the economy has underperformed, and thus, the stock market still has room to run.

Chris Hyzy, chief investment officer for global wealth and investment management at Bank of America, said it is hard to say a bubble has emerged given the current state of investor sentiment.

"Investor sentiment is not good. We've had negative flows into the equity markets by retail investors, by institutional investors. Stock buybacks are what have held the market up," he told "Squawk Box," referring to corporations repurchasing their own shares.

Hyzy said current stock market valuations are not excessive.


Debating the markets
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Debating the markets

USAA portfolio manager Bob Landry said he thinks the Fed is manipulating interest rates, but doesn't agree with Trump's use of the word "bubble."

While he believes stocks are relatively expensive, he said that is largely due to strong corporate earnings growth since the market low in 2009. He acknowledged that corporate revenue growth has been negative for the last six quarters, but attributed much of that weakness to the impact of a protracted oil price downturn on the energy and materials sectors.

"There's this thinking that the Fed has provided a lot of the fuel for stock price appreciation, but I think a lot of it is driven by just really solid corporate fundamentals in recent years," he told CNBC's "Squawk on the Street."

Low interest rates have pushed investors into the market for stocks and other riskier assets in a hunt for returns government bonds no longer yield.