Investors are ignoring a big threat to stocks - and putting too much faith in the Fed, 'Bond King' Bill Gross warns

• Investors are overlooking the risk to stocks from a sharp rise in real bond yields, Bill Gross says.
• The "Bond King" is skeptical the Fed will achieve 2% inflation and cut interest rates anytime soon.
• Gross warned the US economy relies on asset prices rising, putting it at risk if they don't.

Investors are shrugging off a key risk to the stock market, and putting too much faith in the Federal Reserve, Bill Gross says.

Yields from 5-year Treasuries have surged from about 2.1% to 4.4% over the past 18 months, while inflation has slowed from 7% to below 4% over the same period. The "incredible" surge in real yields has lessened the relative appeal of stocks, as investors can now earn a solid, risk-free return from bonds even after accounting for inflation, Gross said.