Former ‘bond king’ Bill Gross warns ‘irrational exuberance’ is driving stocks higher

But anticipating when investors enthusiasm for stocks will finally fade remains as difficult as ever, he said. 

Of course, there have been plenty of fluctuations in the interim: the yield on the benchmark U.S. Treasury note has risen 300 basis points over the past two years.

The fact that stocks have continued to march higher despite such a dramatic rise in borrowing costs is telling, according to Gross.

“It tells me that fiscal deficit spending and AI enthusiasm have been overriding factors and momentum and ‘irrational’ exuberance have dominated markets since 2022,” he said.

“Irrational exuberance” was famously used by former Federal Reserve Chairman Alan Greenspan in a December 1996 speech in reference to the then-fledging bubble in technology stocks. 

Like Greenspan said back in 1996, it’s impossible to know ahead of time when the market’s “excessive” exuberance might finally start to flag. 

Gross said that remains true today. 

Best known for co-founding fixed-income asset-management giant Pimco, Gross officially retired from Wall Street in 2019 after a short-lived stretch managing money at Janus Henderson Group, which he joined after being forced out of the firm he helped to create.

How Bill Gross Built a Bond Empire—Then Lost It All

Former Pimco ‘bond king’ predicts central bank will be unable to go above 2.5% to 3%

“We’ve just gotten used to lower and lower rates and anything much higher will break the housing market.”

But how do we know when irrational exuberance has unduly escalated asset values?

The day of the speech, the Dow Jones industrial average closed at 6,437 points

Chairman Alan Greenspan, December 5, 1996

Asset price bubbles and Central Bank Policy


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