Billionaire investor Bill Gross says the stock market's record-breaking run is set to slow.
He recommends that investors reposition toward defensive and high-yielding stocks.
His favorite investments at the moment include MLP pipelines and municipal income funds.
Though this year's record-beating stock rally continues to impress Wall Street, billionaire investor Bill Gross isn't so sure the bull market will maintain its hot pace for much longer.
According to the so-called Bond King's latest note, investors should reposition toward defensive and higher-yielding stocks as momentum winds down. He also recommended low exposure to fixed income, having previously criticized current Treasury conditions.
"No bear market, but it's not the same bull market anymore," Gross said, adding that equities are set for "low buy positive" returns going forward.
Gross also listed four of his favorite investments at present time:
The first is Allete, an electric-service company that has risen 5% year-to-date. It's a buyout with 10% upside over the next 12 months, he said.
Gross also touted multiple limited partnership pipelines, an investment he frequently emphasizes as a fruitful alternative to bonds. He cited that MLPs offer 8% tax-deferred yields. Back in May he said that MLPs had been "almost as good as AI."
On the theme of Treasury alternatives, Gross also cited Annaly Capital Management, a high-yielding mortgage REIT.
He also sees municipal income funds as a worthwhile investment, as many have offered over 7% tax-free yields. Gross named the DWS Municipal Income Trust as one example but noted that there are between 20 and 30 others to choose from.
"7% may not last forever, but for now these funds trade at 6-8%," he said.
Gross isn't going as far as to predict that the stock bull run is about to crash, only that a number of headwinds are around the corner. These range from extended valuations to an assortment of macroeconomic and geopolitical headwinds.
Gross specifically cited higher corporate taxes under a Kamala Harris presidency, as well as stunted growth if military tensions keep escalating globally. Rising deficits — an issue the investor has repetitively warned against — will eventually slow down spending.
Gross also referred to the record cash pile held by legendary investor Warren Buffett, which some see as a sign that the market could soon sell off sharply. To Gross, it at least signals a "bumpy road ahead."
His note also cited some positives to counter the listed headwinds, such as falling inflation and continued investment in artificial intelligence.
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