Investors are 'due for a very big wake-up call': top money manager

Brian Sozzi

Investors have seemed to forget about equities risk in September. But not one influential, veteran money manager.

“I think the markets independent of the [presidential] elections frankly are due for a very big wake-up call,” Ariel Investments Chief Investment Officer Rupal Bhansali said on Yahoo Finance’s On the Move. Bhansali has $7 billion under management at Ariel Investments and is the author of the new book ‘Non-Consensus Investing.’

Bhansali added, “I will tell you that in 2007 having been through markets and covering 50 countries, this playbook has been with us before. If you care to look back in history, Japan tried quantitative easing and it failed. Ultimately it’s about corporate earnings and balance sheets. Ultimately investors need to wean themselves off steroids.”

The stock market could experience a major setback this year, Bhansali thinks, adding that investors need to pay more attention to the recently soaring costs in the repo markets and sub-2% 10-year Treasury yield.

The unexpected

“People are not expecting it which is exactly why it could happen. The real disappointment is not going to come from earnings that everyone keeps watching, it’s about balance sheet risk,” said Bhansali.

Photo: Jin Lee/AP/dapd

To Bhansali’s point, investors, perhaps, have gotten too high on the hog this month. The S&P 500, Dow Jones Industrial Average and Nasdaq Composite are all up almost 3% in September, despite no good news on the U.S.-China trade war front. High beta, momentum tech stocks such as Facebook (FB) and Alphabet (GOOG) have led the markets higher.

Meanwhile, the CBOE Volatility Index (VIX) — aka Wall Street’s fear gauge — is hovering around the lows of the year.

So, given that complacency, it’s not far-fetched investors could be badly caught off guard in the fourth quarter. Sometimes it pays — handsomely — to be a contrarian investor like Bhansali.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow him on Twitter @BrianSozzi

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