Throughout 2017, the pan-European Stoxx 600 rose about 7 percent and the S&P 500 gained 16 percent. Despite the current consensus that central banks are moving towards a tighter monetary policy — and the correction seen last week — many investors still continue to buy stocks.
“I would accept that’s all true (last week’s correction was a normal behavior) if everyone wasn’t already all invested,” Toogood said, whose firm has $15.3 billion of assets under management. “Everyone is in, so who’s the buyer? It’s very (2007), (2008). It’s very similar to that pattern and I don’t see why you’d get excited,” he added.
Prior to the market crash in 2008, stocks had hit several all-time highs. In October of 2007, the Dow Jones industrial average closed at a high despite some early warning signs of the upcoming turmoil in markets. The chaos only caught up in the months following.
“You’re breaking some very major levels in most markets outside of the U.S. still, and that is very, very significant. That is the test of where you’d think a bear market is coming; I still do, just on valuation alone. I think this market is nuts,” Toogood said.
However, the usual trade — when stocks lose favor, investors tend to choose bonds — is also not an option at this point. Bond yields, which move inversely to their price, have been rising, turning bonds into a perceived riskier asset.
“It’s one of those extremely unpleasant moments when people need income but income is expensive and that’s the other problem we see … We are forced into high yield (bonds) and we don’t want to be there,” Toogood said.
