Stocks have repeatedly risen to record highs in recent weeks, and bonds have enjoyed an unexpected rally during the first half of the year.
That has made investors worried about both markets,
The Wall Street Journal reports.
On the equity side, "as the U.S. stock market ratchets higher, we get less enthusiastic," Ben Inker, co-head of asset-allocation at money manager GMO, tells the paper.
Editor’s Note: 5 Shocking Reasons the Dow Will Hit 60,000
In fact, the overall holdings of stocks in GMO's Benchmark-Free Allocation fund has been cut to 45 percent from 54 percent at the end of last year.
"But we're not heading for the hills, or doing this because we think the stock market is about to fall apart," he argues.
The S&P 500 gained 13.09 points or 0.67 percent, Tuesday to close at a record-high 1,973.32.
Meanwhile, Barclays U.S. Aggregate bond index generated a return of 3.9 percent in the first half of the year.
Inker says the bond rally, which reflects uncertainty about the U.S. economy, should give stock investors pause. "Whatever is worrying the bond market from an economic perspective hasn't hit the stock market," he says.
Inker is particularly wary of small-cap stocks. The Russell 2000 index of such stocks has a price-earnings ratio of 19, according to Bank of America Merrill Lynch. That compares with a 20-year average of 16.9.
"U.S. small-caps look to be really quite dangerously overvalued," Inker notes.
To be sure, some investors remain bullish on stocks. "The market is very resilient," Steve Krawick, president of West Chester Capital Advisors, tells
Bloomberg.
"We had some crisis in Ukraine and the Middle East, but our economy has been stable. We didn’t have a correction when the market had the opportunity to correct in March. We realize the fact that valuations are not cheap, but that doesn’t translate into the end of the bull market."
Editor’s Note: 5 Shocking Reasons the Dow Will Hit 60,000
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