– S&P 500指數的遠期本益比與美債殖利率成正相關，但人工智慧突破和美國政府的強力支出減弱了這種關聯。
“Bond King” Bill Gross Says US Stocks are Overvalued
Bond king Bill Gross: US stock market overvalued
Inveterate ‘Bond King,’ Bill Gross, recently announced that US stocks are clearly overvalued, advising investors to steer clear of US stocks and bonds. The Federal Reserve is not likely to cut interest rates anytime soon and the surge in US bond yields is increasing downward pressure on the market.
The co-founder of Pacific Investment Management Co. and popularly known as the ‘Bond King,’ Gross’s latest investment outlook, released on Wednesday, suggested that even after the recent huge drop, US bonds and stocks are still unattractive due to the inflationary pressure limiting the Federal Reserve’s ability to cut interest rates.
Gross counseled against long-term investment in US stocks and bonds under the current circumstances. He remarked that he would forego stocks and bonds in terms of total future returns. “Although bonds are not very attractive either, they are at least better transactions than stocks in the case of economic slowdown or weakness,” wrote Gross in the report.
Gross pessimistic about future performance of US stocks
Within this week, the yield of the 10-year US Treasury bond has reached a new 16-year high due to the deep-rooted perception that the Federal Reserve might keep interest rates high. The key driver behind this trend is the real yield after adjustment for inflation, which has shifted from around -1% two years ago to 2.4%.
Last month, Gross referred to a chart by Goldman Sachs analysts, stating that the forward price-to-earnings ratio (P/E) of the S&P 500 index showed a positive correlation with the 10-year US real yield for the past five years, with the only exception being around the past 12 months. He believes that despite short-term absorption of this impact by potential AI breakthroughs and strong government spending, in the long term, US stocks will still be weighed down by this factor.
Trading strategies from the Bond King
Meanwhile, Gross directs investors towards adopting more complex strategies such as merger arbitrage—buying the stocks of the target company when bids for acquisition are higher than the market price and profiting from the spread when the acquisition is completed. He insists that the best bets are arbitrage in merger deals, including Microsoft’s acquisition of Activision Blizzard Inc. for $69 billion.
He also leans towards businesses focused on natural resources such as oil and natural gas, mentioning oil pipeline master limited partnerships (MLPs) that offer a higher yield and tax benefits on exchanges. He does admit, however, that MLPs tend to be unstable due to the fluctuations in oil prices.
Projected low chance of the Federal Reserve cutting interest rates in the short term
Mentioning US bonds, Gross pointed out that the recent bond selloff originated from the ballooning government budget deficits, Federal Reserve’s reduction of bond holdings, and a commitment to prioritizing interest rates for a long time. According to Gross, Jerome Powell, the Federal Reserve’s chairman, is unlikely to make meaningful cuts to interest rates in the short term, hence inflation will probably remain at around the 3% mark.
Gross confirms that the actions of bond ETF holders selling off their bonds are enough to drive the market, and identifies small investors joining the fiscal department and Federal Reserve to negatively impact bonds as the reason why he’s bearish on US bonds.