The chief investment officer warned that the market faces two major risks, but while paying attention to these challenges, he is also bullish on some stocks, calling them "alternatives to bonds".
According to Vahan Janjigian, Chief Investment Officer of Greenwich Wealth Management, investors are overlooking two major risks facing the market. He stated in an interview with CNBC's "Street Signs Asia" program last week that the first risk is the national debt of the United States.
He pointed out, "I believe another major risk that investors are overlooking is the massive and growing debt of the United States, and perhaps more importantly, the cost of servicing that debt. The United States is unable to control spending, with larger deficits continuing to emerge and fund them through ever-increasing borrowing."
He added that interest payments on the national debt already exceed close to $1 trillion in defense spending and explained that the Federal Reserve has been raising rates to combat inflation. "A larger debt burden at higher interest rates is fundamentally unsustainable," he said, adding that regardless of the outcome of the November elections in the United States, higher taxes are "inevitable." "Higher taxes and pressure to reduce spending are not favorable for a bull market."
Janigigian pointed out that geopolitical tensions and weak oil prices are the second risk. He expressed surprise that the conflicts between Russia and Ukraine, Israel and Hamas, and the weak oil prices have not caused a larger market reaction. "Perhaps most surprising is that oil prices remain low, as these regions are closely linked to oil, but the market seems to believe there is ample supply. The current greater concern is that China's oil demand may be lower than expected," Janigigian said.
The International Energy Agency stated in its recent monthly report that global oil demand is slowing down and highlighted a contraction in China's oil consumption in April and May, which has long been seen as the "engine" of global oil demand growth. The International Energy Agency predicts that demand growth in 2024 and 2025 will be below 1 million barrels per day, considerably lower than the growth rate of 2.1 million barrels per day last year.
Despite these risks, Janigigian remains optimistic about certain stocks. He mentioned three stocks that have "very generous dividends": IBM (IBM.N), Verizon (VZ.N), and Pfizer (PFE.N), and stated that he continues to increase his shareholding in the pharmaceutical company. He noted that these three companies have been increasing their dividends year after year.
According to FactSet data, IBM currently has a dividend yield of 3.3%, Verizon has a yield of 6.3%, and Pfizer has a yield of 5.7%. He stated that in a sense, these stocks are "alternatives to bonds".
"In some ways, you can say these stocks are actually like bonds because their stock prices do not fluctuate like Nvidia (NVDA.O)," Janigigian said. "However, unlike bonds, dividends will grow and there is potential for capital appreciation."