According to Michael Grant, the Chief Investment Officer of Calamos Investments, the bull market may be approaching its end. Grant believes that the market is currently experiencing what he calls the “invincibility syndrome.” This syndrome occurs when investors falsely believe that stocks will continue to rise without any obstacles. He warns that stocks could soon enter a period of low returns, possibly lasting for “many years.”
Grant points out several indicators that suggest the market is in a precarious state. Valuation measures show that stocks are currently at historically expensive levels. For example, the median price-to-earnings ratio of the S&P 500 is 28, the highest it has been since the dot-com bubble. The Shiller cyclically adjusted price-to-earnings ratio has also reached a record high of over 35.
Sentiment and position indicators also signal that investors are overly optimistic about the stock market. Household bullishness on stocks is at levels not seen since the dot-com era. Additionally, US households hold a record amount of $42.43 trillion in corporate equities and mutual fund shares. The amount of cash held by non-bank investors in equity mutual funds has dropped to historic lows, suggesting little room for cushion in case of a market downturn.
Grant questions what will continue to drive the market higher if everyone is already bullish on stocks. He points out that while investors have been optimistic about stocks this year due to expectations of rate cuts and a strong US economy, a soft landing or no landing at all could mean that interest rates will not significantly decrease.
Grant predicts that 2024 could be the strongest year for large-cap stocks in the century so far, with the S&P 500 possibly reaching 6,000. However, he cautions that this does not guarantee a bright future for stocks and warns of a potentially rough period ahead.
Overall, Grant believes that the market is approaching a peak and that investors should be prepared for a period of weaker returns in the coming years.