Bill Gross has warned investors to tread carefully in today’s treacherous market.
The billionaire “Bond King” said they shouldn’t cash out but should avoid the riskiest assets.
Gross argued that asset values increasingly reflect “new fundamentals” like Fed policy and momentum.
Investors should exercise caution in today’s perilous market, Bill Gross has warned.
A century ago, a company’s stock price was largely determined by hard numbers such as its book value or cash flows, the billionaire cofounder of Pimco wrote in an investment outlook titled “Fundamentally Speaking” that was published on Friday.
Today, other factors such as Federal Reserve policies, levels of bank leverage, and momentum play an increased role as valuation drivers, he said. Asset prices could ultimately suffer a result, as negative forces such as spiraling public and private debts and soaring healthcare costs weigh on government budgets and sap market support.
Still, investors “need to at least get on the dance floor instead of being a disgruntled wallflower,” or they risk missing out on gains before the next market calamity, Gross said.
The veteran investor known as the “Bond King” was nodding to a famous line uttered by Citigroup CEO Chuck Prince shortly before the mid-2000s housing bubble burst and a global financial crisis took hold.
“As long as the music is playing, you’ve got to get up and dance,” the bank chief said at the time, underscoring that Wall Street was resigned to taking huge risks while fully aware they could end badly.
Gross countered that “investors should be willing to sit out some dances – even some AI dances that may or may not blossom.” Still, they shouldn’t take cover entirely: “I’m not advocating hiding away in a bomb shelter,” he wrote.
“But be careful,” Gross continued. “These are dangerous times – financially, geopolitically, and climatologically. These three are the market’s new fundamentals.”
The S&P 500 surged by 24% last year, and the benchmark stock index has advanced another 0.6% this year to trade near an all-time high. Yet several experts have warned the market is headed for disaster, as several recession indicators are flashing red, overseas conflicts threaten to disrupt growth, and stubbornly high inflation could forestall interest-rate cuts.
Against that backdrop, Gross advised investors to take part in the market but stay away from the riskiest assets.
“I’m being careful,” he said. “You should too, no matter how great Nvidia looks.”
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