Market has 'room to run' but that doesn’t mean buy more stocks: Bridgewater co-CIO

A red-hot stock market still has “room to run,” but that doesn't make it the best place to put your money right now, according to the co-chief investment officer of the world’s largest hedge fund.

“I see very few people who need to buy more” stocks, Bridgewater Associates' Karen Karniol-Tambour said at Yahoo Finance’s Invest conference Tuesday.

The stock market surged to record highs following last week’s presidential election, and Wall Street strategists pushed higher their outlooks for where stocks could be by the end of the year.

Investors reacted by raising their exposure to US stocks to an 11-year high, according to Bank of America, as they bet on optimism about economic growth under President-elect Donald Trump.

“What you can't ignore is that people's exposure to the stock market today is radically different than normal,” Karniol-Tambour said. “People are very, very exposed to the stock market.”

Her concern is that many investors are no longer as well-positioned to withstand shocks. Stock-bond portfolios that used to be 60% stocks and 40% bonds are now 80% stocks and 20% bonds, she noted.

Karniol-Tambour said she tells clients they should make their “next marginal move” into something that could help them in growth or inflation-shock scenarios — whether that’s bonds, gold, or other commodities such as oil.

Bonds would protect a portfolio more in a growth-shock scenario, such as the outbreak of war or a financial crisis, while gold, oil, and other commodities are preferred in the event inflation rears back, she said.

"I like having both in my portfolio," Karniol-Tambour added.

There are still “lots of reasons to think” the current stock market “has room to run,” she said, noting that the current picture looks a lot like 1998 when the S&P 500 rose 28% and the Federal Reserve was in the midst of easing monetary policy.

“I think we’ve got an expansion that has a ways to run here,” she said.

But 1998, she noted, was followed by the bursting of the dot-com bubble.

“Obviously, the bubble that burst in 1999 was very, very bad for people's portfolios for a long time,” she added.

“You don't want to be under-diversified, even with a positive outlook for the stock markets.”

The full impact that Trump’s bigger proposed tariffs, immigration policy, and tax cuts could have on the US deficits have also sparked concerns inflation may begin rising again.

“Markets are basically telling you, more or less, Donald Trump means somewhat good for growth, somewhat inflationary,” Karniol-Tambour said.

David Hollerith is a senior reporter for Yahoo Finance covering banking, crypto, and other areas in finance.