As markets wobble on conflicting economic reports in recent days, a major London insurer is warning that both stocks and bond markets were at increasing risk, and a major U.S. bond house issued a similar, although more muted, warning on fixed income investments, including U.S. Treasuries.
Lloyd’s of London said in a statement Tuesday that the rise in the markets so far was unlikely to be sustainable.
The Dow Jones Industrial Average has shot up by 50.7 percent as of the close Monday from its March low of 6,547.05.
"We expect that current market levels will make it difficult to achieve significant returns in the balance of the year," Lloyd's said.
Meanwhile, bond guru Bill Gross, the influential money manager at Pimco, said on Monday that the coming end to debt buybacks by the Federal Reserve could create problems in U.S. credit markets.
"It's obvious that the programs in the United States, the Federal Reserve buyback programs. . . those purchases and that purchasing power will cease within the next three to four months," Gross told CBC News Network.
"So, to the extent that that's gone, then perhaps the upward influence in terms of those longer-term Treasuries will be felt more strongly in the next several quarters."
As for the dollar, Gross said he saw little threat of inflation as the global crisis continues to unwind.
"There's substantial excess capacity not just in terms of production but certainly in terms of employment," he said.
"That excess capacity will reduce the potential for inflation. We see inflation at zero to 1 percent for a number of years going forward."
According to Morgan Stanley euro analyst Teun Draaisma, investors have just a little bit more rally left, and then a long, low multi-year grind as moneys starts to get tight.
The tightening phase may start in the next quarter or two, Draaisma writes on the Money Morning blog.
“We believe investors need increasingly to consider the implications of monetary and fiscal stimulus withdrawal,” he says.
“We expect the first Fed rate hike in mid-2010, but the tightening turning point could come sooner, for instance through higher oil.”
“The Fed language change ahead of the first hike, or a market timing sell signal, would indicate the start of that next phase, for us.”
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