Columbia’s Moore Warns Stocks Have Reached ‘Bizarre’ Valuations

  • Expresses concern that investors are taking on too much risk
  • Says central bank policies no longer stimulating growth

What Can Stop the Stock Market Rally?

Money manager Colin Moore said the ongoing rally in stocks is pushing valuations to dangerous levels.

“I am getting more and more afraid of investors herding into stocks and the search for yield,” Moore, global chief investment officer at Columbia Threadneedle Investments, said Friday in an interview on Bloomberg Television. “It is becoming bizarre in terms of the valuations being paid.”

Moore joins investors including Bill Gross of Janus Capital Group who have warned that the rally in stocks and bonds has pushed prices to unattractive levels. Gross, in his most recent monthly commentary, wrote: “I don’t like bonds; I don’t like most stocks; I don’t like private equity.”

The three main U.S. equity benchmarks Thursday hit all-time highs, driven by better-than-projected corporate results, improving economic data and optimism that central banks will stay supportive of growth. The S&P 500 Index trades at a price-to-earnings ratio of 20.5, a number that has climbed steadily over the past five years, according to data compiled by Bloomberg.

But there are signs that the rally may be unsustainable. U.S. profit forecasts have turned negative for 2016 as the latest earnings season has failed to stem downgrades from analysts.

Profits for companies in the S&P 500 are now expected to fall 0.1 percent for fiscal 2016, and 0.8 percent in the third quarter from a year earlier. That’s down from estimates of a 0.7 percent rise for 2016 and 1.8 percent rise for the third quarter before the earnings season began four weeks ago, Bloomberg data shows.

Moore, who oversees $460 billion, said investors were becoming “addicted” to very low interest rates. “I would advocate for central banks to step back,” he said. “Their policies no longer stimulate growth.”

Moore said the world’s economies would ultimately be better off if central banks moved rates back to more normal levels, which he thinks could bolster confidence.

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