Third Point hedge fund manager Dan Loeb, who has nearly doubled the S&P 500's return for more than two decades, expressed concerns for the market rally in a note to clients.

“We believe equities should go higher but at a moderate pace. While our case for continued favorable conditions is sound, we recognize that the calculus is more fragile than it was a year ago,” Loeb said in an investor letter obtained Monday by CNBC. “The single most important factor to follow is Fed action.”

He expressed his worry on the prospect of the Federal Reserve raising rates more than 300 basis points total by year-end 2019 from when the tightening cycle began in 2015. Current Fed projections indicate that the central bank's benchmark funds rate will be around 3.4 percent in 2019, from near zero at its low point.

“Tightening of that magnitude has almost always resulted in recession. While we believe this well‐seasoned Fed understands exactly the tightrope it is walking, the risk of destructive action is not zero,” he said.

Loeb, a widely followed hedge fund industry figure, won big last year by placing a bullish market bet on President Donald Trump's pro-growth agenda, including tax reform and deregulation, in addition to predicting “synchronized global growth.”

His main hedge fund returned 18.1 percent in 2017, while many of his peers significantly underperformed the market. The fund gained 6.1 percent in 2017.

Loeb's hedge fund Third Point Offshore is up 0.8 percent through the end of June this year compared with the S&P 500's 2.6 percent return in the same time period, according to the investor letter. From inception in December 1996 to June, the fund generated annual returns of 15.4 percent versus the market's 8.1 percent.

He also shared three other risk factors to the stock market rally: