'Big Short' star Steve Eisman says investors are 'too fricking happy' – and markets could slump if they end up disappointed

• "The Big Short" star Steve Eisman says investors are too bullish and disappointment may hit markets.
• Infrastructure programs are an economic tailwind and the federal debt isn't a concern, he says.
• Eisman only expects the Fed to cut interest rates once this year if there isn't a recession.

Jubilant investors are setting themselves up for disappointment, and markets could suffer the consequences, Steve Eisman told CNBC on Tuesday.

"Everybody's just a little too fricking happy," the investor of "The Big Short" fame said. He was played by Steve Carell in the movie adaptation of Michael Lewis' book, which changed his name to Mark Baum.

The S&P 500 jumped 24% and the Nasdaq Composite surged 43% last year, as investors cheered slowing inflation, resilient economic growth, and the prospect of interest rates falling in 2024.

Both indices tumbled in 2022 as the pace of price increases hit a 40-year high of more than 9%, the Federal Reserve hiked rates rapidly to relieve the pressure, and recession fears mounted.

"The market climbed a wall of worry the whole year," Eisman said, noting that most investors now feel sanguine about the economy. "Everybody is coming into the year so bullish that if there are any disappointments, what's going to hold the market up?"

The senior portfolio manager at Neuberger Bergman highlighted federal infrastructure spending as one major growth tailwind, and said he wasn't worried about historic amounts of government debt triggering a financial catastrophe.

Eisman was one of a handful of investors including Michael Burry and John Paulson who predicted and profited from the collapse of the mid-2000s housing bubble that sparked the last financial crisis. He said he only expected one cut to rates next year – well below the Wall Street consensus of three.

"If there's no recession, I don't see any reason why the Fed needs to be aggressive at cutting rates," he said, asking why the central bank should rush and risk an inflation resurgence if the economy's doing fine.

Bullish investors are betting a return to low and stable inflation, continued economic growth instead of a recession, and declines in borrowing costs will fuel consumer spending, corporate earnings, and demand for risky assets. 

Yet several experts have warned that markets are overstretched and the economy is showing cracks. For example, renowned forecaster Gary Shilling has called out dangerous speculation and investment fads, while veteran economist David Rosenberg has flagged the inverted yield curve, shrinking money supply, and declines in leading indicators as strong evidence of trouble ahead.