The famous American investor Bill Gross, dubbed the “bond king”, predicts that the stock market is likely to decline as soon as any headwinds arise.
Gross wrote in a tweet on Monday that in a confrontation between the outburst of artificial intelligence and market momentum on the one hand, and on the other hand, the Chinese-American slowdown and the continuation of the negative curve, the latter side will outweigh.
Known as the “bond king”, Gross co-founded fixed-income giant Pimco and managed its flagship bond fund. His comments seem counterintuitive to markets right now, but they have merit.
Investors are betting heavily that AI will increase productivity and inflate corporate profits. So they are investing heavily in stocks that are likely to benefit from this boom, including Nvidia, Microsoft, Alphabet, Tesla and Meta Platforms.
The market’s rally also reflects the improvement in economic sentiment, especially as inflation has eased from a 40-year high, paving the way for the Federal Reserve to start cutting interest rates and avert a recession.
In contrast, the Chinese economy grew just 0.8% over the past three months, down from 2.2% in the first quarter. The slowdown surprised analysts who expected the country’s lifting of pandemic restrictions would unleash rapid growth.
In America, too, alarm bells are ringing, as the Conference Board index declined for the 15th month in a row, which raises the possibility of a recession on the horizon, especially with more pressure in consumer spending, the erosion of their savings, and the decline in a number of important sectors.
All this is added to the reliable indicator of recession, which is represented by the negative yield curve, when the yield of short-term bonds exceeds its long-term counterpart, which means that investors expect a large interest rate cut, which is something that the Federal Reserve resorts to to stimulate the stagnant economy.
