Gross says investors should prepare for lower stock earnings
In his investment outlook for November 2016, Bill Gross advised investors to be prepared for lower stock earnings and PE (price-to-earnings) ratios in the future. Donald Trump’s plans relating to increased fiscal spending coupled with lower taxes could lead to higher budget deficits in the US (IVV) (VOO).
According to the Committee for a Responsible Federal Budget (or CRFB), Trump’s plan would most likely lead to a -$5.8 trillion due to tax cuts and another -$0.7 trillion from higher interest costs, supported by only $1.2 trillion from primary spending cuts. The CRFB believes that Trump’s plan would leave the US economy (IWF) (IWD) (SQQQ) with a net $5.3 trillion in increased fiscal deficit over the next ten years.
Bill Gross doesn’t think we’ll see a ‘new Trump bull market’
Now, “higher deficits resulting from lower taxes…have the potential to produce lower earnings and P/E ratios,” says Gross. Consequently, contrary to the “Trump rally” many have been talking about since the election results, Bill Gross sees “no new Trump bull market in the offing.” Gross added, “Be satisfied with 3-5% globally diversified returns…the Wall Street, finance-led hegemon is fading.”