Billionaire investor Bill Gross says the stock market’s record rally is slowing and recommends investors pivot to defensive and high-yield stocks. Some of his favorite investments at the moment include MLP pipelines and municipal revenue funds.
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This year’s record stock price gains continue to impress Wall Street, but billionaire investor Bill Gross isn’t convinced the bull market will maintain its hot pace for much longer.
Investors should move into defensive and high-yield stocks as momentum weakens, according to the latest memo from the so-called bond king. He has also previously criticized the current Treasury situation and recommended lower exposure to bonds.
“There’s no bear market, but it’s no longer the same bull market,” Gross said, adding that stocks are expected to deliver “buy-low positive” returns going forward.
Gross also named four of his favorite investments at the moment.
The first is Allete, a power services company whose stock is up 5% since the beginning of the year. He called it a buy with room for upside of 10% over the next 12 months.
Mr. Gross also touted several limited partnership pipelines, which he frequently touted as profitable alternatives to bonds. He noted that MLPs offer an 8% tax-deferred yield. In May, he said MLP is “almost as good as AI.”
On the subject of Treasury alternatives, Gross also mentioned Annaly Capital Management, a high-yield mortgage REIT.
He also believes that many municipal income funds have tax-free yields above 7%, making them worthwhile investments. Gross cited DWS Municipal Income Trust as one example, but noted there are 20 to 30 other options.
“7% may not last forever, but right now these funds are trading at 6-8%,” he said.
Gross doesn’t predict the bull market will crash, only that there are many headwinds on the horizon. These range from expanding valuations to a variety of macroeconomic and geopolitical headwinds.
Mr. Gross specifically cited corporate tax increases under President Kamala Harris’ administration and the potential for stunting growth if global military tensions continue to rise. Rising deficits, a problem investors have repeatedly warned about, will ultimately slow spending.
Gross also cited legendary investor Warren Buffett’s record pile of cash, which some see as a sign that the market could soon fall. For Gross, that at least points to a “tough road ahead.”
His memo also cited several positive points to counter the headwinds listed, including lower inflation and continued investment in artificial intelligence.
