Then he started working on brass tacks. His favorite market sector: natural gas pipelines, from which he estimates returns between 9% and 12% for investment grade stocks with certain tax benefits. It’s also why he suggests investors to watch Magellan Midstream Partners(MMP), BP Midstream Partners(BPMP) and Enterprise Products Partners(EPD).
Growth stocks, especially the biggest IPOs of 2020, including Snowflake, Airbnb and Doordash, will struggle to meet the expectations of what Gross calls “day-trading Robinhoods,” he added. The same goes for SPACs or specialty acquisition companies and the “Teslas of 2020.”
“This market is driven – yes – by intense speculation, but also by fiscal-pumped, central bank-produced corporate profits, which, when discounted to present value at near zero nominal and in many cases negative real interest rates, yield record prices. , ‘Said Gross.
He attributes their possible downward performance to the Federal Reserve’s commitment to keep interest rates near zero for years.
“Much of the market’s appreciation over the past two years, especially for growth stocks, is due to lower real interest rates,” said Gross. A rally that will only continue if real returns remain “substantially negative,” he continued.
Overall, the investing legend warned that the coronavirus scars on the economy – coupled with a stock market being pumped with help from the Fed and fiscal stimulus – could begin to mirror the stock markets of Nordic and European countries. It’s a concern for Gross, who cites that both countries’ markets are trading at a lower price-to-earnings ratio than some of the latest IPOs and stocks like Microsoft currently trading on Wall Street.
“How many tax packages can the stock market take before realizing GDP is now opioid-like, depending on more and more Washington dollars turning our Republican capitalist supply side into a – gasping! – ‘universal income.’ Like ‘sluggo comparable to Europe. “For that to happen, I think unemployment needs to return to pre-covid levels. Fed Chairman Jerome Powell has said the same – but we’re far from it,” Gross said.
