– This is the script of CNBC's news report for China's CCTV on July 25, Monday.
Welcome to CNBC Business Daily, I'm Qian Chen.
As stocks and gold continue to climb in 2016, one of Wall Street's largest firms has a clear message for investors: There could be trouble brewing in this rally.
Prices on bullion and government debt, two of the safest of safe havens, have skyrocketed this year even as risk-sensitive assets have powered higheras well. According to some, that isn't a good thing.
"I believe we are seeing signs of froth in perceived safe assets," advised Stephen Parker, Head of Thematic Solutions for J.P. Morgan Private bank.
Parker explained that, with low U.S. interest rates, typical safe haven assets have gotten too expensive.
Notably, gold has been on a meteoric rise and is currently trading at levels not in nearly 2 years. From here, Parker said it may be time for investors to pivot away from expensive parts of the market, and get back into more cyclical sectors like consumer discretionary, technology and energy. He expects those assets to be supportive of U.S. markets in the long-term.
Investors appear to be heeding Parker's call, at least in the short term. U.S. bonds sold off last week, pushing yields to a six-week high (bond yields move inversely to prices). Notably, the U.S. 10-year yield rose above 1.60 percent for the first time since the Friday following Brexit.
The optimism was warranted as fundamentals justified the risk rally. In particular, stronger-than-expected earnings, bolstered by top line revenue growth, have surprised to the upside, That "...is something we haven't seen in recent quarters," he said. Through Friday, 65 percent of earnings reports have come in above estimates led by beats from General Electric and Whirlpool, which has encouraged investors.
"Investors have been caught a little bit offside in terms of being too cautiously positioned," Parker said. "Fund managers are sitting on the highest levels of cash they've had since 2001. Now that markets are rallying, they're being forced to chase."
This is where Parker says the danger is for investors.
"You need safe haven assets to manage volatility," Parker said in reference to owning U.S. Treasuries. "But I think you need to be careful right now."
Additionally, Parker urged investors to consider opportunities that exist in emerging markets now that global growth and commodities have stabilized.
In a research note to clients last week, Bank of America noted record flows into emerging market bonds, which jumped to nearly $5 billion this past week. That exceeded a record of $3.4 billion set just two weeks ago.
Year-to-date, EEM, the exchange traded fund made up of emerging markets equities in South Korea, China and Taiwan, is up 11 percent.
CNBC's Qian Chen, reporting from Singapore.