(Bloomberg) -- Stock markets are risking an unsustainable "sugar high" as investors price in a pro-growth agenda from Donald Trump's administration that may not be supported by an improvement in the economy, according to the world's largest mutual-fund company.
It would take "very little to end up with a market correction because of higher valuations," Tim Buckley, chief investment officer of Vanguard, said in an interview at his company's London office this week. "You are teetering from a height and it's easy to lose your balance. It takes a little bit from the outside, and volatility returns to the market."
Buckley, whose company manages about $3.5 trillion, is a veteran of the dotcom bubble of the late 1990s and early 2000s. While the jump in stocks since Trump's surprise U.S. presidential victory is "not even close" to the "euphoria and the crazy stuff" that was stoking markets back then, he said equities still risk getting ahead of themselves.
U.S. stocks surged after Trump's Nov. 8 election, pushing the Dow Jones Industrial Average above 20,000 for the first time amid expectations he'll cut taxes, boost spending and dismantle regulation.
But the question for investors such as Buckley is whether the real economy justifies these gains. While Federal Reserve officials said this week that sentiment is improving and inflation is heading toward their target, they termed a pick-up in business investment "soft" and refrained from signaling an imminent boost to interest rates.
And there are more immediate threats to stock markets, too. The Dow Jones pulled back this week as President Trump's immigration restrictions stoked speculation about isolationist policies that could harm American trade. The index closed at 19,884.91 in New York on Thursday, down from its peak of 20,125.58 on Jan. 26.
"Right now it's gotten ahead of itself," Buckley said. "You could go from getting ahead of yourself to going on a sugar high if you continue down that path. It needs fundamentals to catch up