• The bull market could possibly be in its final days, in step with Calamos Investments’ Michael Grant.

• The CIO said the market has suffered from “invincibility syndrome.”

• Grant said stocks could soon enter a period of weak returns, possibly for “a couple of years.”

The bull market in stocks looks prefer it’s near the best, in step with an investment chief.

Michael Grant, the co-CIO of Calamos Investments, thinks large-cap stocks could possibly be on the best track for probably the most effective years through the last century, before the market suggestions right right 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.

“Essentially probably the most significant feature of this investment yr is the perception that US equities are virtually invincible. This ‘Invincibility Syndrome’ historically signals a crescendo when markets are inside the strategy of summiting a major peak,” Grant wrote.

“In our view, the paradox of this rewarding yr is its underlying warning of low future returns for 2025 and beyond,” he later added.

The precarious state of the market could also 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. As an illustration, the median price-to-earnings ratio of the S&P 500 is 28, the costliest stocks have been relative to earnings since across 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 easiest level on record.

Sentiment and position indicators are also flashing signs investors are overexcited with reference to the stock market, Grant said.

Households seem to be probably probably the most bullish on stocks for the explanation that dot-com era. The proportion of consumers who expect stock gains over the next yr has climbed to its highest levels recorded since 1987, in step with the three-month moving average of responses to the Conference Board’s monthly survey.

Households even have a lot of money 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 sum of money held by non-bank investors as a percentage of equity mutual funds has dropped to only about 30%, around historic lows. Meaning there’s little “cushion” inside the event the stock market declines or experiences a shock, Grant said.

Story continues

“What’s striking today is how positioning measures corroborate the diagnosis of prolonged confidence and valuation for the leading categories of US equities. What stays to drive a market higher if everyone appears to be already bullish?” Grant said.

Investors have felt pretty optimistic about stocks thus far this yr, thanks largely due to optimism on the US economy and expected rate cuts. But when the economy is headed for a soft landing or no landing the least bit, which means rates of interest 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 flawed. The landscape taking shape represents the final word stages of the bull market and a prelude to a much more disturbed period ahead, perhaps for a couple of years,” he said.

Grant added that the push toward 6,000 for the S&P 500 suggests that 2024 will mark the strongest yr for large-cap stocks of the century thus far, but that doesn’t suggest the long term may be as good.

“And yet, this thought pales compared with the growing evidence that we’re witnessing a crescendo— a summit for equities which may prove durable.”

Read the unique article on Business Insider