Bill Gross recommends moving to defensive stocks as Rally loses steam

(Bloomberg) — The rally that helped U.S. stocks nearly double their value over the past five years is winding down, 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 medium levels while focusing portfolios more on defensive stocks with a small bond position.

“No bear market, but not the same bull market anymore,” Gross, the co-founder and former chief investment officer of Pacific Investment Management Co., wrote in his latest investment outlook.

Gross’s comments add to a steady stream of warnings that the furious rally that pushed the S&P 500 to record highs may be fizzling out. A small but growing cohort of market watchers questioned the AI ​​frenzy that has been one of the biggest contributors to the stock’s rally, while others warned that the upcoming US presidential election could test investor optimism.

In the note, Gross lists 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 downsides, Gross cited potential 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 amassing a record amount of cash also serve as a warning about the “bumpy road ahead,” Gross said.

Gross retired from the money management business in 2019 and has since shared investment thoughts and trading ideas on his website and social media.

Gross’s preferred investments include Annaly Capital Management, a high-yield mortgage REIT, DWS Municipal Income Trust, a mutual 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 buyout target.

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