Even The Fed has finally been forced to admit the market is trading at ‘elevated levels’, and is “vulnerable to large declines.”
So when the CEO of one of the largest active US fund managers tells investors to “step away from risk” to avoid being burned in increasingly speculative markets, it is perhaps time to start paying attention as the S&P makes it 69th record high this year, pushing its valuations to ’11’ on the Spinal Tap amplifier of ‘overvaluedness’.
$1.6 trillion fund group T. Rowe Price CEO Bill Stromberg, who is retiring at the end of the year, cautioned in an interview with the Financial Times that “over [the] last two years there has been a way above-average amount of speculation, adding that “we’ve been in a cycle where there has been very free-form risk-taking.“
As we have noted numerous times, Stromberg warns that the major indices are being propped up by a small handful of extremely large, overvalued companies, while much of the rest of the market is “picked over”.
“It is time to be managing away from the most speculative investments – things that have very high valuations without revenues to support it.”
Investors should not be overexposed to what has worked in the past year, or even three years, the CEO concluded, urging investors to “step away from risk.”
“Even if they are a year too early. Because when the market unwinds, it will be areas of risk that unwind the most.”
The irony in all of this, of course, is the man who is suddenly risk-aware and offering these ominous warnings (long overdue for any reasonable market observer) is retiring and therefore no longer needs the average joe investor to feed the funds from which he rakes his earnings.