The stock market has been on a tear lately, with the Dow and S&P 500 hitting a series of records. And while the market has been described as “boring” as volume and volatility recede, every major asset class — stocks, bonds, commodities, emerging and frontier markets — was up year-to-date as of Tuesday, making this certainly a unique and interesting moment.
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Komal Sri-Kumar, president of the investment firm Sri-Kumar Global Strategies, says a dangerous conglomeration of factors is conspiring to threaten the rally.
"My concern now is we're in the sixth year of monetary easing, going into the seventh, and still don't have economic growth pickup to a sustainable pace," he says. "We've done [easing] for a long period of time and there's still no improvement for the growth picture."
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Unlike most economists, Sri-Kumar doesn't believe the drop in first-quarter GDP was all due to weather. "The economy showed a significant amount of weakness, that's what the bond market is referring to."
Unlike most economists (and pundits), Sri-Kumar has been predicting lower bond yields and "continues to look for it to go down."
In sum, he believes the bond market is signaling a weak economy and the stock market is merely "taking advantage of the Yellen put ... and looks like it's getting into dangerous territory right now."
As with many pundits, Sri-Kumar believes there is a bubble forming in the stock market, citing historically above average price-to-earnings and price-to-sales ratios, but concedes "you can never tell how big it's going to get before it bursts."
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Against that backdrop, the former TCW Asset Management strategist advises that investors remain defensively postured, predicting continued outperformance for utilities, healthcare, Treasuries and high-grade corporate bonds.
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