Investors are far too complacent about market and economic risks, Crossmark Global Investments CEO and Chief Investment Officer Bob Doll suggested Monday.
"Lacking a crystal ball, we can only rely on economic and capital market fundamentals and frameworks that argue for considerably greater caution than investors are demonstrating," Doll wrote in his weekly commentary. "Positive prospects are already discounted in equity and credit prices. Investors are complacent about inflation and weakening growth. And therefore, risk assets are fully valued."
The current cycle's longevity is unknowable, he wrote. Meanwhile, the rich valuations for many assets "weaken their risk-reward outlook and indicate the potential for significant losses should today’s optimistic assumptions prove erroneous — or at least overstated," he said.
After hitting new highs, stocks fell last week, with the S&P 500 down 2.34%, Doll noted, citing growth concerns stemming from a disappointing jobs report. Equities staged a partial rebound early Monday, with the S&P 500 over 1.2% higher, Nasdaq up 1.65% and the Dow Jones Industrial Average up nearly 1%.
"Investors have thrown caution to the wind and embraced pro-growth monetary and fiscal policies, while discounting any of the upside inflation or other policy risks, such as several higher U.S. tariff rates. U.S. equities, corporate credit, private credit, gold and cryptocurrencies have been among the beneficiaries of buoyant liquidity conditions and boast historically rich valuations," Doll noted in his newsletter, issued before the market open.
"An unquenchable thirst for AI plays, high hopes of significant Fed rate cuts in the year ahead, and confidence that U.S. tariffs will not jeopardize global economic growth or corporate profits have spurred a risk-on climate," Doll said.
"While we don’t believe we are in a full-blown bubble, asset prices are at or near all-time highs in many areas," Doll said. "Stocks are priced for perfection and the market’s failure to power higher in the face of strong 2Q EPS results leaves us wanting to take some profits over the near-term into weaker seasonality."
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.