Steve Eisman, investor known for his success in 'The Big Short,' expresses concern that the market is overconfident, predicting potential disappointment.

Steve Eisman, the investor known for "The Big Short," is expressing doubts about the level of optimism on Wall Street, despite the market's sluggish beginning in 2021.

Eisman expects little tolerance for things going wrong, given the enthusiasm surrounding the "Magnificent Seven" technology stocks and anticipation of multiple interest rate cuts this year.

On Tuesday, the Neuberger Berman senior portfolio manager stated on CNBC's "Fast Money" that while they are still optimistic about the long term, they are concerned about the near term as many people seem to be entering the year with an overly positive outlook.

On the first trading day of the year, the tech-heavy Nasdaq fell 1.6%, the S&P 500 fell 0.6%, and the Dow eked out a gain. Despite coming off a historically strong year, the major indexes are still performing well. The Nasdaq rallied 43%, the S&P 500 soared 24%, and the Dow was up nearly 14% in 2023.

The market faced a wall of worry throughout the year, but now, a year later, everyone, including me, has a positive outlook on the economy. However, as we enter the new year, there is a growing sense of optimism, and if there are any disappointments, it may be difficult to keep the market afloat.

Eisman believes that fewer rate hikes than anticipated in 2024 could negatively impact the short-term market. The Federal Reserve has forecasted three rate cuts this year, but fed funds futures pricing suggests even more cuts. Eisman thinks these expectations are too optimistic.

Eisman stated that the Fed is still fearful of repeating the mistake made by former Fed Chief Paul Volcker in the early 1980s, where he halted raising interest rates, resulting in inflation spiraling out of control again. If Eisman were the Fed, he would think, "What's the rush? Inflation has already arrived."

Yet, Eisman suggests it’s still a wait-and-see situation.

If I were in Jerome Powell's position, I would pat myself on the back and say "job well done" because I don't see any reason for the Fed to be aggressive in cutting rates if there's no recession. However, if a recession were to occur, I would consider cutting rates unless there's a specific reason not to do so.

‘Housing stocks are justified’

It seems that Eisman, famous for predicting the 2007-2008 housing market collapse and making a profit from it, is showing interest in investing in homebuilding stocks.

The investor stated on "Fast Money" in October that he was avoiding the group. Since then, the group, which is tracked by the index, has increased by 25% and 57% over the past 52 weeks.

The housing market is justified because homebuilders have strong financials, allowing them to offer lower interest rates to customers, making it more affordable for them to purchase new homes," he stated. "There's a shortage of new homes.

Eisman skips housing in his top 2024 plays, focusing instead on areas of infrastructure.