(Bloomberg) — The rally that has seen U.S. stocks nearly double in value over the past five years is waning, and investors should expect low but positive returns on their investments, according to Bill Gross.
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The billionaire investor recommends keeping stock market exposure at a moderate level, while focusing his portfolios more on defensive stocks with a small exposure to bonds.
“Not a bear market, but it’s not the same bull market anymore,” wrote Gross, the co-founder and former chief investment officer of Pacific Investment Management Co., in his latest investment outlook.
Gross’ comments add to a steady stream of warnings that the furious rally that has pushed the S&P 500 to record highs may be running out. A small but growing group of market watchers have cast doubt on the AI frenzy, which has been one of the biggest contributors to the rise in stock prices, while others have warned that the upcoming US presidential election could test investors’ optimism.
In the note, Gross lists negative headwinds, such as high valuations, geopolitical risks and an unsustainable government deficit, against positive forces, including inflation closer to the Federal Reserve’s target and AI investment spending.
Among the negatives, Gross also mentioned possible increases in corporate taxes if Democrat Kamala Harris wins the Nov. 5 election and her party gains a majority in Congress. Reports that Warren Buffett is now hoarding a record amount of cash also serve as a warning of the “bumpy road ahead,” Gross said.
Gross retired from the money management industry in 2019 and has since shared investment thoughts and trading ideas on his website and social media.
Gross’s favorite investments include Annaly Capital Management, a high-yield mortgage REIT, DWS Municipal Income Trust, a close-end muni fund, and master limited partnerships (MLPs), which are tied to oil and gas contracts. He also likes Allete Inc, a utility company that is a takeover target.
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