It’s not the Federal Reserve that keeps James Gorman up at night.
The chief executive officer of Morgan Stanley said he’s more worried that the stock market has reached record highs in recent months with technology stocks like Facebook Inc., Amazon.com Inc., Google parent Alphabet Inc. and Netflix Inc. trading at very high multiples. Morgan Stanley operates the largest equities trading and capital markets operation in the U.S.
“You’ve got markets at record highs, and, as we know, these things don’t go in a straight line,” Gorman said Wednesday in an interview on Bloomberg Television in Davos.
Stocks have continued to climb higher as investors bet that tax reform will boost companies’ future earnings. The S&P 500 Index climbed 6% this month after jumping 19% last year.
“Markets are expensive, but they’re not ridiculous,” Gorman said. “Future earnings are growing, and the tax cuts will amplify that growth.”
Gorman said the Fed’s rate hikes are healthy and he’s not concerned about the central bank raising rates multiple times this year. His comments differed from those of billionaire hedge-fund manager Ray Dalio, who warned earlier on Wednesday that the Federal Reserve could tighten monetary policy more than it has signaled, pushing the bond market into a bear phase. The current environment, Dalio said, is good for stocks but bad for bond investors.
