Blackstone Is Worried About Market Pullbacks

Blackstone Group is a private equity and alternative asset management behemoth with more than half a trillion dollars in assets under management. So when the firm’s Managing Director and Chief Investment Strategist in the Private Wealth Solutions group Joseph Zidle sounds the alarm bell, investors of all sizes tend to listen.

‘Excessive’ Sentiment

Zidle said in a CNBC interview aired Wednesday the sentiment in the current market has become “excessive.” He said he also believes the current bull market has extended itself too much and investors could see one or more pullbacks of at least 5% throughout 2020.

Granted, after the S&P 500 index returned 30% last year, a 5%, or multiple 5% pullbacks, will still leave many investors’ long-term portfolio in the green. But the worst thing any investor can do is just sit back and hope for the best.

Far From A Bear

Zidle earned himself a reputation of being a firm market bull so his cautious statements may have caught some by surprise. But at some point, common logic and an opinion backed by historical data prevail over sentiment.

Going back to the 1960s, investors earned an annualized return of “only” 4.3% when they bought stocks at 19 times earnings, Zidle said. Valuations are trading at around 19 times earnings today which implies allocating new capital at current levels may not be the wisest of ideas.

“In other words, it’s telling you that valuation over the long term will be an issue if you were to deploy capital at these levels,” Zidle explained.

Holding Cash Is OK

Bridgewater Associates is the world’s largest hedge fund and its founder Ray Dalio recently coined a new term: “cash is trash.” It’s ok for members of the investment community to disagree with each other as it gives investors different perspectives.

Zidle counts himself among the crowd who sees no problem in holding some cash. He told CNBC viewers cash represents around 15% of the total assets he manages. 

“Our advice to investors is to deploy that tactically,” he said.

Meanwhile, the unofficial master of investing, Warren Buffett, is sitting on a whopping $128 billion in cash so Zidle is in good company. 

2020 Will End In The Green

Even if Zidle’s predictions come true and the market experiences one or more 5% pullbacks, investors will likely take advantage of any and all weaknesses. Zidle said he expects the S&P 500 to close out 2020 at 3,500 which implies a 5% return — far short from 2019’s gains but still better than a loss.