Beware of long-term bonds.
That's the case Todd Morgan, chairman and CEO of Bel Air Investment Advisors, made Tuesday on CNBC's "Trading Nation."
Morgan, whose firm manages nearly $9 billion in assets, said that while it's too early to call an end to the bull run Wall Street has enjoyed over the past decade, it's "too dangerous" to approach certain areas of the market.
"If you're going to buy bonds and you need income, I would keep your duration, [your] maturities, short or very medium short," he said. "I think it's too dangerous because rising interest rates — which, they could happen in the next couple years — could do a lot of damage to your portfolio if you start buying long-term bonds."
Bond prices fall when interest rates rise. If the economy improves enough for the Federal Reserve to change course and begin hiking interest rates again, it could pose a threat to those hunting for yield, Morgan said.
Treasury yields sank slightly Wednesday as investors awaited further details on the U.S.-China trade dispute.
"I think you're better off diversifying in the stock market between all the different categories: large, small, some emerging markets," Morgan said. "We predominantly like the large cap[s] and we like the names that have a lot of growth to them, which you can hold long term and feel comfortable."
With the market's fundamentals "still attractive" and many investors sitting out the rally so far, "the stock market makes a smart alternative [to bonds] for a good portion of the population," Morgan added.
That bodes well in the historically difficult trading month of October.
"There's a lot of cash on the sidelines which I think will be coming into the market continuously, and that's probably why this October, which is usually hurricane season, has done so well," he said. "I do believe, by the way, stocks are under-owned by individuals, ... and people are not going to feel that comfortable about reinvesting their money in the bond market and getting small returns."
If the sideline cash does come into play in the stock market, Morgan sees stocks rising 8% to 10% by the end of next year. For comparison, although the S&P 500 is up nearly 20% year to date, it has climbed just more than 9% over the last 12 months.
While Goldman Sachs recently warned that "plummeting" corporate buybacks could throw a wrench in the market's future gains, Morgan sees much more controlling the narrative than share repurchase programs alone.
"I don't think it's meaningful enough to make a significant sea change," Morgan said. "We have to have the right earnings — which, the earnings surprises have been on the positive side — continue to have a friendly Fed, and valuations have to be OK, which I think they are."
All in all, "we're staying the course," he added, and "you're better off staying the course as long as you have quality names."
U.S. stocks were marginally higher Wednesday as investors evaluated earnings reports from industrial giants Caterpillar and Boeing.
