'Bond King' Bill Gross says the record stock rally is at risk of stalling — and tells us what could keep the party going

• Bill Gross says the record stock rally needs fresh support to sustain its momentum.
• "Valuation casts a shadow over markets in 2026," the bond billionaire wrote in an outlook.
• Gross told BI that rate cuts, rapid earnings growth, and evidence of AI's benefits could help.

Bill Gross says the stock market's record rally is at risk of stalling, and fresh support is needed to keep it going.

There's been a "little wobbling" to start the year, signaling the market's in "need of a cane to steady its momentum," the billionaire investor known as the "Bond King" wrote in an investment outlook on Wednesday.

The AI boom has propelled Big Tech stocks to historic highs, fueling a nearly 80% rise in the S&P 500 over the last three years. But the benchmark index has whipsawed this month between a 2.1% gain at its peak and a 0.8% decline at its trough.

"Lower interest rates would help, as would continued news that AI actually results in higher productivity, and continuing 15% plus earnings gains," Gross told Business Insider by email.

Gross, who cofounded PIMCO and grew its flagship Total Return Fund to $270 billion over nearly 30 years, wrote in his outlook that stocks are being shored up by rosy earnings forecasts, which are underpinned by fiscal and monetary stimulus.

He cautioned, however, that US markets could falter as "political unrest" threatens to undermine core capitalist principles such as "competition and survival of the fittest."

Gross said that even in the AI space, "tariffs and government aid" could lead to the "unfittest" surviving in future marketplaces.

A major trend of President Donald Trump's second term has been greater executive intervention in the business world. The federal government has taken equity stakes in corporations such as Intel, imposed sweeping tariffs on foreign imports, and thrown its full weight behind AI companies' infrastructure buildout.

High prices are casting a 'shadow' over the market

Gross also warned in his outlook that high valuations are a concern, noting a version of the Buffett Indicator that compares the S&P 500's price to nominal US GDP is at a "historic high."

Warren Buffett's favorite gauge shows "froth is visible" in the market as stock prices are rising faster than GDP, Gross told BI.

The Wall Street veteran wrote in his outlook that "productivity, tax rates and geopolitical influences can suggest no need for a cane." He noted that some market bulls believe AI has changed the game, so they expect "no wobbling — just sprinting."

"But I throw my hat in with the old wizard Warren Buffett," Gross wrote. "Valuation casts a shadow over markets in 2026. No crash, just a forward weave requiring a cane, unlike 2025."

Other high-profile investors have flagged lofty valuations as a headwind.

"Just your daily reminder that stocks are expensive," Michael Burry of "The Big Short" fame said in a X post last week, adding that high prices depress returns.

GMO cofounder Jeremy Grantham echoed Burry on a recent podcast: "If you want to have the highest market in history, you will have the lowest returns in history going forward."