GE power chief exits after losing CEO contest

Everything is awesome for investors. Everything.

Stocks are at peak levels. Bonds are making money despite a raft of predictions to the contrary at the start of the year. Stock markets overseas, notoriously poor investments for much of the last decade, are perking higher. Even gold, which typically glitters brightest when other markets are struggling, is up this year.

If it feels precarious to have so many investments doing so well, particularly when the economy itself is still growing only modestly, markets are giving few indications of worry. The volatility index that traders use to measure fear in the U.S. stock market hit its lowest, as in calmest, level last week since 1993. And stocks have been so strong for so long that investors have been rewarded for using any dip in prices that does happen as an opportunity to buy low.

The latest example was the pullback for big technology stocks that began on Friday. Apple, Facebook and other technology giants that had been among the market’s biggest stars slumped, seemingly on the simple worry that their runaway success had made them too expensive. But the rest of the market held steady through the mini-bout of tumult, and the tech giants got back to climbing again on Tuesday.

Analysts pin much of the credit for the upsurge in markets on all the stimulus that central banks have thrown at them. By keeping interest rates low and buying trillions of dollars of bonds, the Federal Reserve, European Central Bank and others have helped lift prices for bonds. And when bonds get more expensive, it makes stocks and other types of investments more attractive in relative terms, even if their price tags no longer look cheap at face value.

That has some contrarians worried about what will happen as the Federal Reserve continues raising interest rates and talks about paring back its bond investments. And, perhaps more importantly, what will happen when other central banks join in. Mom-and-pop investors seem relatively unfazed for now. They have been plowing cash into stock and bond funds this year, but concerns are bubbling up elsewhere.

Bill Gross, the famed bond fund manager, recently cautioned investors to not “be mesmerized by the blue skies created by central bank” actions. “All markets are increasingly at risk,” he wrote in his most recent investment outlook.

Big institutional investors have begun cashing in some of their winnings and have sold some stocks or moved into less-risky areas of the market, said Kirk Hartman, global chief investment officer for Wells Fargo Asset Management. Even he himself has dialed back a bit on stocks.

“In my own portfolio, do I have more cash than earlier in the year?” he said. “Absolutely.”

If stocks do end up having a sharp pullback, he wants to have cash on hand to pounce quickly and buy some more.

Here’s a look at what’s been driving markets, and what risks lie beneath:

The U.S. stock market

Corporate profits are climbing again, and analysts expect earnings for S&P 500 companies to rise 10 percent to a record this year after stalling or falling the last two years.

Revenue growth is also stronger for companies, which offers a more sustainable and healthier route to gains.

For years, businesses depended instead on cutting costs and buying back their own stock to squeeze out more earnings per share.

If Washington is able to cut tax rates, as Republicans have promised to do, profits could be set for an even bigger bounce. And stock prices, at their heart, reflect how much profit companies are producing or will.

Price tags are high.

This most recent quarter notwithstanding, companies’ stock prices have been rising faster than their profits. When measuring the S&P 500 against its expected earnings over the next 12 months, stocks have been this expensive just 1 percent of the time over the last 10 years, according to Jack Ablin, chief investment officer at BMO Private Bank.

General Electric’s Steve Bolze, once a leading contender to succeed Jeffrey Immelt as chief executive officer, is leaving the company just days after missing out on the top job.

“Some time ago, Jeff Immelt and I agreed that when the succession process was complete, and if I were not chosen, I would retire from GE and move on,” Bolze, 54, the head of GE Power, said in a note to employees Wednesday. “I cannot tell you how proud and grateful I am to have been considered.”

Bolze’s exit recalls the executive exodus more than 16 years ago when Immelt was chosen to succeed Jack Welch — and raises the question of whether other managers are poised to depart. In naming John Flannery as the next CEO on June 12, Immelt said the transition was being handled “in a different way,” drawing praise from analysts who said the company’s goal was to avoid the disruption of highprofile departures.

While GE has taken steps to avoid losing top talent, Bolze’s departure “has echoes of the ‘brain drain’ debacle of the previous CEO transition in 2000,” Deane Dray, an analyst with RBC Capital Markets, said in a note. Given his age, Bolze may resurface as CEO at another industrial company or go into private equity, Dray said.

Chief Financial Officer Jeff Bornstein, who also was said to be in the running to take over from Immelt, was promoted to vice chair. GE Oil & Gas boss Lorenzo Simonelli, who analysts viewed as another potential successor, will run Baker Hughes after it merges with GE’s crude unit.

In the previous CEO transition, Immelt’s appointment prompted the departure of two high-profile leaders, Jim McNerney and Robert Nardelli.

McNerney went on to lead 3M Co. and Boeing Co., while Nardelli helmed Home Depot Inc. and Chrysler.

Russell Stokes, a 20-year GE veteran who runs the energy connections business, will take over as CEO of GE Power on July 3, the Bostonbased company said in a statement. The power division, which makes gas turbines, is GE’s largest manufacturing business, with sales last year of $26.8 billion. It recently introduced its H-class turbine, GE’s largest.

A rising star at GE, Stokes, 45, has led the energy connections business the last 18 months and previously ran the locomotives unit. He “brings a strong combination of operational, industrial and energy experience to this role, and can now scale his leadership skills,” Immelt said in the statement.

GE said it will combine the power and energy connections businesses into a single division in the third quarter. The $15.1 billion energy connections unit prepares to divest the iconic lightbulb operations. The company said last week that it is starting talks with potential buyers for GE Lighting.