Investors should now be more careful about what they buy, as markets inch closer to new highs, said Robert Luna, CEO of Surevest Wealth Management:
“When we’re looking at 19 times forward earnings based on some pretty optimistic observations out there about the economy, I think investors need to take a pause here,” Luna told CNBC’s “Closing Bell” on Tuesday.
He said he would advise investors to be more active and look for individual companies that haven’t rallied as much and may be trading at a discount.
The benchmark Dow Jones industrial average inched closer to the 20,000 level on Tuesday.
Brandon Corso of Edelman Financial Services cautioned investors against dumping bonds out of their portfolios. While Corso’s firm has been warning investors of longer-term bonds, he said on “Closing Bell” that short and medium-term bonds are still positive year to date.
Though yields have gained recently, Luna pointed out the yield on the U.S. 10-year Treasury note is still below 3 percent.
“I think you’re still getting a decent yield in some of the equity space, over 2 percent, so I wouldn’t be making a large shift into bonds. But that being said, if you’ve been underweight fixed income, now that we’ve had this big drop, getting back to your investment policy, it may be time to be shifting some funds back that way,” Luna said.
Corso argued that investors should be investing in bonds not because of expectations for returns, but as protection against a correction in equities.
“While bonds, the yield is low, the reason it’s so important to invest there is not because you’re going to get a lot of return in bonds. The reason is because when stocks fall, they fall a lot. If you’re in short and intermediate bonds, when they fall, usually it’s small single digits and you can survive that,” he explained.