(Bloomberg) — U.S. equities investors, having enjoyed a lengthy run of rich valuations during the course of the pandemic, need to pull back, especially from growth stocks as the Federal Reserve begins to tighten monetary policy, according to Dennis Gartman, University of Akron Endowment Chairman.
“A bear market is required at this point,” Gartman said Monday on Bloomberg Radio. “We had an expansion for a long period of time and I think over the course of next year, he or she who loses the least amount of money will be the winner.”
Though the S&P 500 Index and Nasdaq 100 Index are both up over 20% in 2021, market participants have turned their attention to elevated inflation and Fed Chair Jerome Powell’s hawkish tilt, prompting hedge funds to ditch equities at the fastest rate in 20 months. In fact, the endowment where Gartman helps manage investments plans to follow their lead and cut around 10% of equity exposure before year’s end.
In a wide-ranging interview about stock market volatility and “over-valued” equities, the former publisher of the influential “The Gartman Letter” predicted that prices should go lower within the next year and the 10-year Treasury yield will rise to 2-3% over the next several years.
“The Fed clearly will be tightening monetary policy rather than being as expansionary as it has been, and stock prices are probably headed — the best that one can say is, ‘Get the trend right’ and I think that the trend is now to the down, not the upside.”
As for where investors should seek refuge to cope with a less accommodative central bank, Gartman recommends high-dividend stocks and to “avoid the high-tech stuff Cathie Wood et al. have been exposed to.” Wood is founder and chief executive officer of Ark Investment Management LLC.
“They’re having a rather difficult time and I think they’re going to have an even more difficult time over the course of the next several months,” he said.
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