Despite record-setting gains in the U.S. stock market this year, Bill Gross, the renowned "bond king," expresses uncertainty about the sustainability of this momentum. While not predicting an imminent market crash, Gross warns of certain upcoming challenges, including overvaluation and various macroeconomic and geopolitical headwinds.
In his latest report, Gross advises investors to reallocate their portfolios towards defensive and high-yield stocks as momentum wanes. He suggests reducing exposure to fixed income assets, having previously criticized the current state of U.S. Treasury bonds. Gross states there is neither a bear market nor a bull market, anticipating positive returns for investors buying on dips in the future.
Gross highlights his top investment picks, starting with Allete (ALE, Financial), an electric service company, which has risen nearly 9% year-to-date. He believes ALE has a potential upside of 10% over the next 12 months. He also mentions Master Limited Partnerships (MLPs) tied to oil and gas contracts as productive alternatives to bonds. In the realm of Treasury alternatives, Gross points to high-yield mortgage Real Estate Investment Trusts (REITs) such as Annaly Capital Management. Furthermore, he sees value in municipal income funds like DWS Municipal Income Trust.
Gross notes potential corporate tax increases if Democratic candidate Kamala Harris wins the upcoming election and her party gains a Congressional majority. He also cautions that escalating global military tensions could hinder economic growth and that increasing deficits, a concern he has repeatedly highlighted, will eventually slow spending.
Additionally, Gross observes that legendary investor Warren Buffett (Trades, Portfolio) is currently accumulating a record amount of cash, which some interpret as a signal of an impending stock market sell-off. To Gross, this suggests a challenging path ahead for the market. However, he also identifies positive factors that might offset these challenges, such as declining U.S. inflation and ongoing investment in artificial intelligence.
