The CIO overseeing $270 billion at Guggenheim says stocks will plunge another 27% from current levels — but lays out a series of recommendations for bargain-hungry investors
- Scott Minerd — the global chief investment officer at Guggenheim, where he oversees $270 billion — says the S&P 500 is on track to fall 27% from current levels to 2,000, if not further.
- He’s warning investors to stay away from stocks for now.
- Minerd is more optimistic about the bond market, especially long-duration and high-quality bonds. But he’s approaching other parts with caution out of a fear credit spreads will widen further.
- He’s interested in investing in US manufacturing as well, but is waiting for proof the sector has hit a low point.
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Scott Minerd — global chief investment officer for Guggenheim Investments, where he oversees $270 billion — displayed a remarkable sense of timing earlier this year. And his forecast is still in effect, investors will need to watch out.
In mid-February, Minerd said the COVID-19 outbreak could tank the stock market, adding that the market would “end badly” one way or another and the lack of worry from credit market investors was “crazy.” The S&P 500 hit its latest record high less than a week later, and a few days after that investors experienced the bad ending Minerd predicted.
Today, Minerd — who’s become known for bearish market views — still thinks there is a lot of danger lying in wait. On Tuesday he tweeted that the two-day S&P 500 drop represents a “break in uptrend” that signals the index will fall to 2,000, a plunge of 27% from its current levels. That would represent a 40% plunge from the February high.
At the same time, since he’s been expecting disaster, Minerd thinks opportunities are starting to present themselves since the market does look dramatically different than it did two months ago.
“Bonds are historically cheap, so it would be foolish to remain underweight,” he said. “At the very least it is probably best to get to neutral versus the benchmark.”
But even cheap high-yield bonds have to be approached with caution, he says. The spreads on government, investment grade, and high-yield bonds are all at some of the widest levels in history, which is a sign investors are fearful and don’t want to take risks.
Minerd thinks investors could get even more skittish and high-yield prices could fall even further, making credit spreads wider. He’s in no hurry to get on the wrong side of that trade.
“We are looking at investment-grade corporate bonds and municipal bonds, and select securities in structured credit and high-yield, where prices have dropped and spreads have widened significantly, look interesting,” he said.
Meanwhile he says investors should be high-quality, long-duration bonds for income because another decade of ultra-low interest rates looks likely.
Minerd adds that he’s negative on stocks in general, predicting “panic” brought on by earnings and economic data. And he isn’t eager to look for value plays in the travel or energy sectors, where comebacks might develop very slowly and some companies likely won’t survive.
He’s a bit more optimistic about companies in manufacturing, but doesn’t plan to start buying until he knows all the bad news is priced in.
“The most likely indicators that will coincide with a buy signal would be a sharp rise in the unemployment rate and a continued fall in the ISM Manufacturing Index,” he said.
As a final warning, Minerd says emerging markets “could be the next domino to fall” because of their enormous levels of debt and weakening currencies.
“We have also seen that the amount of “hot money” capital—equity, debt, currency, loans, trade credits—going into emerging markets has exploded over the last decade,” he said. “Those inflows will turn to outflows during a crisis, which also spells trouble.”
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