The Federal Reserve's massive easing program has inflated both the stock and high-yield bond markets, leaving each of them vulnerable to a plunge, says activist investor Carl Icahn.
"The Fed has made it clear that they're not going to raise interest rates so fast. This market follows the Fed," he told
CNBC.
The S&P 500 index would be "meaningfully lower" without the Fed's stimulus, Icahn said. "I am quite concerned that something is going to happen."
The index has nearly tripled from its March 2009 low. It had a trailing price-earnings ratio of 17.8 Friday, down from 18.32 a year ago, according to Birinyi Associates.
On the bond side, "I think the high-yield market is in a bubble," Icahn said. "I think that is a no-brainer." The Barclays U.S. Corporate High Yield bond index has returned 6.2 percent during the last year.
"People are buying [high-yield bonds] for the wrong reasons. Some people are just buying them for an interest play. Some are buying because they say 'I can't make 2 percent on my money. So I want to make 5 percent or 5 ½ percent,'" he explained.
"For that 3 ½ percent, you're taking a major risk. Way too much."
Others differ with Icahn on that point.
Pimco high-yield portfolio managers Andrew Jessop and Hozef Arif think now is the time for investors to dive into that market.
"Today, high-yield spreads and yields are materially wider [than at the peak of the high-yield bond rally in May,] and fundamentals remain compelling," they write in a commentary on Pimco's website.
Meanwhile, Icahn reiterated his bullishness on Apple stock. "Companies like this come around once a decade," he said. Apple shares also may benefit from short-covering, Icahn said.
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