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Bill Gross: ‘All Asset Prices Elevated to Artificial Levels’

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Bill Gross: ‘All Asset Prices Elevated to Artificial Levels’ PART 1 OF 6

Bill Gross: ‘Equity Markets Are Priced for Too Much Hope’

Bill Gross in an interview with CNBC

On Thursday, April 13, 2017, in an interview with CNBC’s Power Lunch, billionaire investor and bond guru Bill Gross discussed his views on the equity market, high yield bond market, productivity, and economic growth.

Bill Gross: ‘Equity Markets Are Priced for Too Much Hope’

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Bill Gross on the equity markets

Gross believes the equity markets (SPY) (QQQ) (SPX-INDEX) are priced for too much growth. Since the US presidential election in November 2016, the expectation for strong economic growth, a huge fiscal stimulus, and policy reformation have played major roles in market movement. The optimistic view on the US economy (VFINX) (VOO) and the business-friendly sentiment under President Donald Trump added strength to the market rally. There’s an expectation of a 3.0% growth in the economy, and the market is show a huge movement.

If we analyze the S&P 500 (IVV) (IWM) index’s performance since the 2008 financial crisis, we see that as of March 2017, the index has risen nearly 218.0% from its low of 735 in February 2009. The Fed’s persistent low interest rate has supported this rally. After the subprime crisis, the Fed lowered its key interest rate to recover the economy from a recession or a possible depression.

The economy has had slow economic growth in the last ten years. On average, the economy (VFINX) had a growth rate below 2.0%. A lower interest rate artificially created a bubble in various asset prices. Real economic growth didn’t pick up much during that period. Gross said, “Equity markets are priced for too much hope, high-yield bond markets for too much growth, and all asset prices elevated to artificial levels.”

In the next part of this series, we’ll analyze Gross’s view on the high-yield bond market.

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