U.S. equity markets are "broadly unattractive" with a severe dearth of obvious investment opportunities, according to Cole Smead, portfolio manager at Smead Capital Management.
The backdrop for U.S. equities is in some ways even less attractive than in 1999 during the run-up to the dotcom crash, which led to the S&P500 losing over a fifth of its value and the Nasdaq dropping by a half, claimed Smead.
Yet the Seattle-based fund manager took care to draw the distinction that while there was a breadth to the unattractiveness that surpassed that of the pre-dotcom period, the "egregiousness" of the valuations for large caps was less exaggerated than during the earlier period.
Expanding the picture to consider rising longer-term yields in the U.S. and the increasing expectation of a series of interest rate hikes this year in the U.S., Smead said that it was a poor time for indexes, saying investors would be "paying expensive broad prices with a marginal headwind of rates being in the face of stocks."
Smead also cast his cautionary net wider as he considered the broader investment landscape and noted that even commodities had risen significantly in the past year.
"The irony to your point is we can get into an environment where both the bond market and the stock market get hurt at the same time," he said, pointing out that this would be an opposite dynamic to what we have seen over the last seven years.