Janus Henderson strategist sees market peak approaching, uncertain on timing

Michael Contopoulos, who heads multi-asset macro investing at Janus Henderson Investors, stated that the stock market is approaching its peak. He is unable to specify exactly when the cycle will reverse.

Contopoulos shared his views on the recent rise in interest rates and the state of the US economy during an appearance on CNBC's Fast Money.

Janus Henderson Observes Late Cycle Alongside Robust Economy

The Fed's statement shows that on Sept. 16 it voted 12-0 to raise its benchmark rate by 25 basis points. That move took the range to 3.75% to 4%.

In the meantime, bond yields have risen amid concerns over inflation linked to elevated energy costs, per CNN. As of Sept. 24, traders saw roughly a 71% probability of another rate increase in October.

Contopoulos does not view those developments as a warning sign in isolation. He highlighted solid corporate profits and a market that is expanding.

Contopoulos also referenced unemployment claims. Per Bloomberg, initial jobless claims dropped to 197,000 in the week ending Sept. 19, among the lowest figures since 1969.

When it comes to timing, however, Contopoulos was straightforward.

“I think we are closer to the top of the market and closer to the end of this cycle.”

Michael Contopoulos, CNBC

Contopoulos noted that the downturn might occur in three, six, or twelve months.

Key Indicators Watched; Another Analyst Remains Optimistic

Contopoulos is monitoring several signals: margin compression, decelerating earnings growth, widening corporate credit spreads, and an inverted yield curve. The term credit spreads refers to the additional yield that corporations pay over Treasury bonds.

An inverted yield curve happens when short-dated yields are higher than longer-dated ones. Last Thursday, the 10-year Treasury yield touched 5.22%, with the two-year at 4.94%.

Contopoulos further mentioned that most artificial intelligence (AI) bonds issued in the last six to twelve months are trading below their initial price.

Contopoulos contends that coordinated rate increases around the world are keeping US yields high. Investors have the option to sell Treasuries and buy bonds overseas with higher returns. Japan’s 30-year bond yield reached a record 4.2% last week.

Not all strategists share the view that the market peak is close. David Spika of Turtle Creek contends that equities could still advance 5% to 10% by the end of the year if crude prices continue to decline.

Important economic releases this week, such as inflation data, GDP growth, and employment numbers, will put both outlooks to the test.