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Investors should think twice before buying US stocks, says trader

Mohit Oberoi
Author: Mohit Oberoi

Last Updated: May 21, 2020

Peter Toogood 9pictured), chief investment officer of financial services business The Embark Group, warns that investors should think twice before buying US stocks.

Toogood said: “The US, the big daddy, has been expensive and remains expensive.” Some of the other fund managers including David Tepper and Stanley Druckenmiller have also advised caution on US stock market valuations and see the risk-reward ratio unfavorable.

US stock markets

Meanwhile, US stock markets have looked strong. The Nasdaq Composite Index has turned positive for the year while the S&P 500 is down only 8.0% year to date.

“The fundamentals are going to stink, there is no question the earnings are going to be extremely challenging. And the bridge is the fiscal stimulus,” Toogood told CBNC’s Squawk Box Europe on Wednesday.  He called it a “tug of war” between fundamentals and stimulus. The US government has announced a stimulus totaling 13.3% of the economy and another $3trn stimulus has been passed by Congress.

The coronavirus pandemic is taking a toll on US companies’ earnings and many firms, including giants such as Apple have withdrawn, their guidance amid the uncertainty. Apple stock is up 9.3% for the year. If you wish to trade in Apple stock we’ve reviewed a list of best online stock brokers for share trading.

Toogood said that price to earnings levels for US stock markets are at the highest ever level. He added: “You have to ask yourself the question about why buying US forward here is the right thing to do.”

He said: “If [the coronavirus] comes back, if we have a second go at this, then those multiples aren’t the right multiples. If it isn’t coming back, the fiscal stimulus creates the bridge, and in fact, we’re probably clear. And that’s the thing you’re wrestling with.”

Along with Toogood, Jonathan Pain, author of The Pain Report and JJ Kinahan, chief market strategist at TD Ameritrade have also warned cautioned on US stock markets’ high valuation.

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Mohit Oberoi

Mohit Oberoi is a freelance finance writer based in India. he has completed his MBA with finance as majors and also holds a CFA charter. He has over 13 years of experience in financial markets. He has been writing extensively on global markets for the last six years and has written over 6,500 articles. He mainly covers metals, electric vehicles, asset managers, and other macroeconomic news. He also loves writing on personal finance and topics related to valuation.