Investors ignore market risks, CIO warns: US debt and oil prices are potential hidden dangers

The chief investment officer warned that the market faces two major risks, but while focusing on these challenges, he is also optimistic about some stocks, calling them "alternatives to bonds."

According to Vahan Janjigian, chief investment officer of Greenwich Wealth Management, investors are ignoring two major risks facing the market. The first risk is the US national debt, he said in an interview with CNBC's "Street Signs Asia" program last week.

He pointed out: "I think the other major risk that investors ignore is the huge and growing debt of the United States, and perhaps more importantly, the cost of servicing this debt. The United States cannot control spending, continues to have larger deficits, and finances them through ever-increasing borrowing."

He added that interest payments on the national debt have exceeded defense spending of nearly $1 trillion, explaining that the Federal Reserve has raised interest rates to fight inflation. "The combination of more debt at higher interest rates is simply not sustainable," he said, adding that tax increases are "inevitable" regardless of the outcome of the US November election. "Higher taxes and pressure to spend less are not bullish."

Janigigian pointed to geopolitical tensions and weak oil prices as a second risk. He was "surprised" that the Russia-Ukraine conflict, the Israel-Hamas conflict and weak oil prices did not trigger a larger market reaction. "Perhaps the most surprising thing is that oil prices remain low, given that these regions are closely tied to oil, but the market seems well-stocked. The bigger concern right now is that China's oil demand may be lower than we expected," Janigigian said.

The International Energy Agency said in its most recent monthly report that global oil demand is slowing, noting that China's oil consumption - long seen as the "engine" of global oil demand growth - contracted in April and May of this year. The IEA said it expects demand growth in 2024 and 2025 to be less than 1 million barrels per day, far slower than last year's 2.1 million barrels per day growth.

Despite these risks, Janigigian remains optimistic about some stocks. He mentioned three stocks he called out as having "very generous dividends": IBM (IBM.N), Verizon (VZ.N) and Pfizer (PFE.N), and said he is continuing to add to his holdings of the pharmaceutical company's shares. He noted that all three companies have increased their dividends annually for years.

IBM's current dividend yield is 3.3%, Verizon's is 6.3% and Pfizer's is 5.7%, according to FactSet. In a sense, these stocks are "bond alternatives," he said.

"In some ways, you could say these stocks are actually like bonds because their share prices don't fluctuate like Nvidia (NVDA.O)," Janigigian said. "However, unlike bonds, the dividends will grow and there is the potential for capital appreciation."