Bill Gross: Between Bull Market and Defensive Repositioning

Despite the impressive market rally, renowned investor Bill Gross seems skeptical about the sustained momentum of the bull market on Wall Street. Known as the "Bond King," Gross recommends a strategic shift towards defensive and higher-yielding stocks in his latest report, as market momentum wanes. He also points out that holding a low commitment to bonds is advisable, particularly given his past criticism of current Treasury conditions. Gross asserts that while a bear market is not looming, investors should not have high expectations for future equity returns. Instead, he favors "low positive" yields. One of his favorites is Allete, a utility company that has risen by 5% this year. Gross forecasts a further upward trend of 10% within a year. Gross pays special attention to MLP pipelines, which he repeatedly highlights as a high-yield alternative to bonds. According to Gross, these limited partnerships offer a tax-advantaged yield of 8%. In May, he described MLPs as nearly as rewarding as artificial intelligence. In the realm of Treasury alternatives, Gross mentions Annaly Capital Management, a high-yield mortgage REIT. Municipal income funds also appear promising to him. He cites the DWS Municipal Income Trust as an example, noting that there are 20 to 30 similarly attractive investment funds to choose from, many of which currently offer tax-free yields of over 7%. While Gross does not anticipate an imminent collapse of the bull market, he sees numerous challenges on the horizon, including high corporate valuations, as well as macroeconomic and geopolitical tensions. He expresses concern over a potential increase in corporate taxes under a Kamala Harris presidency and slowed growth in the event of escalating global military tensions. Additionally, Gross points to Warren Buffett's considerable cash reserves, which some interpret as a sign of an impending sharp market downturn. Gross sees this as at least a "bumpy road" ahead. Nevertheless, he highlights some positive developments, such as declining inflation and continued investment in artificial intelligence, which could serve as counterweights to the aforementioned risks.