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Stocks are nearing a major peak and a more ‘disturbed’ period of weak returns is ahead for investors, CIO says
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The bull market could be in its final days, according to Calamos Investments’ Michael Grant.
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The CIO said the market has suffered from “invincibility syndrome.”
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Grant said stocks could soon enter a period of weak returns, possibly for “many years.”
The bull market in stocks looks like it’s close to the top, according to an investment chief.
Michael Grant, the co-CIO of Calamos Investments, thinks large-cap stocks could be on track for one of the best years over the last century, before the market tips into a period defined by subpar returns.
That’s because stocks are flashing signs of “invincibility syndrome,” with investors falsely believing that nothing can stop further gains, he said in a note this week.
“The most significant feature of this investment year is the perception that US equities are virtually invincible. This ‘Invincibility Syndrome’ historically signals a crescendo when markets are in the process of summiting a major peak,” Grant wrote.
“In our view, the paradox of this rewarding year is its underlying warning of low future returns for 2025 and beyond,” he later added.
The precarious state of the market can be seen in a slew of data points that measure valuation, sentiment, and positioning, he noted.
A handful of valuation measures suggest stocks are at historically expensive levels, Grant said. For instance, the median price-to-earnings ratio of the S&P 500 is 28, the most expensive stocks have been relative to earnings since around the dot-com bubble.
Meanwhile, the standard Shiller cyclically adjusted price-to-earnings ratio — which smooths out outlier P/E data — has climbed past 35, the highest level on record.
Sentiment and position indicators are also flashing signs investors are overexcited about the stock market, Grant said.
Households appear to be the most bullish on stocks since the dot-com era. The percentage of consumers who expect stock gains over the next year has climbed to its highest levels recorded since 1987, according to the three-month moving average of responses to the Conference Board’s monthly survey.
Households also have a lot of cash allocated to investments. US households held a record $42.43 trillion in corporate equities and mutual fund shares over the second quarter, Federal Reserve data shows.
Meanwhile, the amount of cash held by non-bank investors as a percentage of equity mutual funds has dropped to nearly 30%, around historic lows. That suggests there’s little “cushion” in the event the stock market declines or experiences a shock, Grant said.
“What is striking today is how positioning measures corroborate the diagnosis of extended confidence and valuation for the leading categories of US equities. What remains to drive a market higher if everyone is already bullish?” Grant said.
Investors have felt pretty optimistic about stocks so far this year, thanks largely due to optimism on the US economy and expected rate cuts. But if the economy is headed for a soft landing or no landing at all, that suggests interest rates won’t move significantly lower, Grant noted.
“Put simply, the decline of long-term risk-free yields appears complete, unless the soft-landing assumption is badly wrong. The landscape taking shape represents the final stages of the bull market and a prelude to a much more disturbed period ahead, perhaps for many years,” he said.
Grant added that the push toward 6,000 for the S&P 500 suggests that 2024 will mark the strongest year for large-cap stocks of the century so far, but that doesn’t mean the future will be as bright.
“And yet, this thought pales in comparison with the growing evidence that we are witnessing a crescendo— a summit for equities that could prove durable.”
Read the original article on Business Insider
The habits of millionaires are a topic of interest when it comes to financial advice. After all, unless they received a large chunk of money as an inheritance or gift, most millionaires had to be smart with their money to get where they are.
Learning how millionaires accumulate wealth — and where they keep it — can provide valuable insights for anyone focused on growing their money. One common question is whether or not millionaires keep money in checking accounts.
Studies show that in recent years, millionaires are keeping a significant portion of their wealth in cash. According to CNBC’s , that portion was about 24% in 2023. While this doesn’t necessarily mean a quarter of a millionaire’s wealth is sitting in a checking account, it does indicate the importance of maintaining liquid assets. And a checking account can be a helpful tool for doing so — whether or not you’re a millionaire.
Anyone, regardless of net worth, can find value in a checking account. Checking accounts allow unlimited deposits and withdrawals, check writing, bill pay, and other features to help you manage your money day-to-day.
While millionaires may keep large portions of their wealth in other deposit accounts and investments, some may use a checking account to manage daily spending. Millionaires also recognize the importance of having liquid assets, like funds in checking and savings accounts. Accessible cash lets you cover unexpected expenses without needing to sell off investments, borrow money, or pay a penalty for tapping your retirement savings early.
The amount of money a millionaire keeps in their checking account is highly personal and depends on preference. However, because checking accounts rarely earn competitive — if any — interest, some millionaires intentionally limit their checking account balance. Some may choose to keep the bare minimum, such as a couple of months’ worth of essential expenses, in their checking accounts, keeping the rest of their wealth in more lucrative assets.
Regardless of preference, it would be surprising for a millionaire to keep more than $250,000 in a single checking account. That’s because the Federal Deposit Insurance Corp. (FDIC) only insures up to $250,000 in deposits per institution, per account holder.
While millionaires may use checking accounts for day-to-day financial transactions, they may also use some of the following accounts in addition to, or in place of, a checking account:
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Savings accounts: Like checking accounts, savings accounts provide a high degree of liquidity, allowing you to access your money as needed for regular or unexpected expenses. High-yield savings accounts, in particular, give millionaires an extra bang for their buck. Some of the best accounts currently offer rates upwards of 4% versus the national average savings account rate of 0.46%.
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Cash management accounts: Cash management accounts (CMAs) pay competitive interest rates while maintaining more accessibility than a savings account. Some CMAs come with a debit card and ATM access, and many provide extended FDIC coverage limits by “sweeping” additional deposits into partner banks. CMAs are available at brokerages, not banks, facilitating easy transfers between investment and cash accounts.
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Money market accounts: Similar to CMAs, money market accounts combine features of checking and savings accounts, often paying competitive interest rates and providing check writing and ATM access. Banks and credit unions offer these accounts, which are federally insured. Minimum opening deposit and minimum balance requirements are often higher than those for standard savings accounts.
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Retirement and tax-advantaged accounts: Millionaires understand the importance of investing for their later years, and retirement accounts such as 401(k)s and IRAs allow them to do so in a tax-advantaged way. Some retirement accounts, like 401(k)s, are offered by certain employers. Others, such as traditional and Roth IRAs, are available to anyone.
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Brokerage accounts: The IRS limits contributions to tax-advantaged accounts, and millionaires typically invest beyond these limits. They do so with taxable brokerage accounts, which can hold investments such as stocks, bonds, and mutual funds without contribution limits.
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Other investments, like real estate, commodities, and art: Some millionaires may decide to diversify their portfolio with other investment types. These could include real estate investments, such as investment properties or real estate investment trusts (REITs); commodities, such as metals or energy products; art; and more.
The amount of money millionaires keep in their checking accounts depends on personal preference. While some millionaires may keep six figures in their checking account to maintain a comfortable cash cushion, others may choose to keep the bare minimum in checking. You wouldn’t expect millionaires to keep more than $250,000 in a checking account, however, because balances over this threshold aren’t typically insured.
There’s no single bank that’s a favorite among millionaires; it’s another matter of preference. However, millionaires are likely to bank with institutions that offer private banking to those who meet specific financial requirements. Private banking may include wealth planning services, waived fees, dedicated bankers, and additional perks. J.P. Morgan Private Bank, Citi Private Bank, and Bank of America Private Bank are among some of the most popular banks for millionaires.
Billionaires may have checking accounts, but they likely use accounts that cater to ultra-high-net-worth individuals. These accounts may come with perks such as a dedicated banker, waived fees, and competitive interest rates. Alternatively, billionaires may opt for a cash management account with higher FDIC insurance coverage limits and checking account features.
No rule says you can’t have a million dollars in a checking account, but FDIC insurance typically only covers up to $250,000. Plus, you can get a bigger return on your investment by keeping $1 million elsewhere. One alternative is a cash management account, which acts like a checking account but generally earns higher interest. Plus, many cash management accounts insure more than the standard $250,000 by sweeping funds into multiple partner banks.
Lumen Technologies, Inc. (NYSE:LUMN) shares are trading higher on Monday after the company announced it is partnering with Meta Platforms, Inc. (NASDAQ:META) to significantly increase Meta’s network capacity and help drive its AI ambitions.
Lumen’s partnership offers Meta enhanced flexibility with secure, on-demand bandwidth, supporting its complex computing requirements and enabling it to serve billions daily.
Ashley Haynes-Gaspar, Lumen’s EVP and chief revenue officer, said, “We’ve transformed our company to meet this demand. As Meta’s customers use more AI services across its platforms, we’re helping provide Meta with a seamless, effortless, and flexible network that will meet its growing needs.”
Lumen Technologies said its Private Connectivity Fabric enables long-term network capacity for Meta’s AI.
Alex-Handrah Aimé, director of Meta’s Network Investments stated, “Our AI tools are performing increasingly more complex tasks including enabling conversations in a variety of languages and translating text to images in real time, while helping people interact with the world around them in new, immersive ways.”
Lumen will report third quarter 2024 results on November 5, 2024.
Investors can gain exposure to the stock via Invesco S&P SmallCap Utilities & Communication Services ETF (NASDAQ:PSCU) and First Trust Cloud Computing ETF (NASDAQ:SKYY).
Price Action: LUMN shares are up 9.50% at $7.38 at the last check Monday.
Image via Shutterstock
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