×

This market is ‘nuts’ and ‘very similar’ to 2008, investment manager warns

  • When asked if he would be buying anything at this point, he said: "Not really, to be honest."
  • Despite the current consensus that central banks are moving towards a tighter monetary policy — and the correction seen last week — many investors still continue to buy stocks.
  • However, the usual trade — when stocks lose favor, investors tend to choose bonds — is also not an option at this point.

Equity markets are not looking healthy and are reminiscent of the period leading up to the global financial crash of 2008, one investment manager told CNBC Wednesday.

According to Peter Toogood, the chief investment officer at financial advisory firm Embark Group, the fact that many investors are still buying stocks after last week's sell-off is a worrying sign.

When asked if he would be buying anything at this point, he said: "Not really, to be honest, not a lot. It's going to be one of those markets where you're going to, I suspect, get a bear market and it's going to be the reality of how far does it go down before (next Federal Reserve Chair Jerome) Powell and co reverse QT (quantitative tightening) and start saying OK we need to be the supportive mechanism again."

Global markets traded higher with U.S. stocks posting a three-day winning streak Tuesday, following the market correction seen last week. This showed that money managers remain confident on the equity market despite recent volatility. Stocks have benefited from years of ultra-loose monetary policy across the world.

However, given the improvements in the global economy, central banks have begun reversing their accommodative programs, with the Fed expected to increase interest rates at least three times this year. Higher interest rates affect companies' borrowing costs and can ultimately make their shares less attractive to investors.

"That is the test of where you'd think a bear market is coming; I still do, just on valuation alone. I think this market is nuts." -Peter Toogood, CIO at Embark Group
Scott Olson | Getty Images

Throughout 2017, the pan-European Stoxx 600 rose about 7 percent and the S&P 500 gained 16 percent. Despite the current consensus that central banks are moving towards a tighter monetary policy — and the correction seen last week — many investors still continue to buy stocks.

"I would accept that's all true (last week's correction was a normal behavior) if everyone wasn't already all invested," Toogood said, whose firm has $15.3 billion of assets under management. "Everyone is in, so who's the buyer? It's very (2007), (2008). It's very similar to that pattern and I don't see why you'd get excited," he added.

Prior to the market crash in 2008, stocks had hit several all-time highs. In October of 2007, the Dow Jones industrial average closed at a high despite some early warning signs of the upcoming turmoil in markets. The chaos only caught up in the months following.

"You're breaking some very major levels in most markets outside of the U.S. still, and that is very, very significant. That is the test of where you'd think a bear market is coming; I still do, just on valuation alone. I think this market is nuts," Toogood said.

However, the usual trade — when stocks lose favor, investors tend to choose bonds — is also not an option at this point. Bond yields, which move inversely to their price, have been rising, turning bonds into a perceived riskier asset.

"It's one of those extremely unpleasant moments when people need income but income is expensive and that's the other problem we see … We are forced into high yield (bonds) and we don't want to be there," Toogood said.

But not everyone is convinced that the stock market has reached is full capacity.

A Morgan Stanley strategist said in a note Monday that equities could rise more than 14 percent from current levels, despite the recent sell-off. Michael Wilson, chief U.S. equity strategist, said that the S&P 500 could reach his "bull case" target of 3,000 "by the middle of the year."