“Summer of Pain” for stocks? Nasdaq Composite May Slip 75% From Peak, S&P 500 Slip 45% From Top, Guggenheim’s Scott Minerd Warns

The carnage that occurs in the US stock market on Wednesday is likely to be liking bush Compare the devastation to the bulls list in the coming months and years, Scott Minerd, chief global investment officer at Guggenheim Partners, told MarketWatch in an interview.

He envisioned the possibility of a dreadful summer and fall for stock market investors — a summer that the Nasdaq Composite Index said on Wednesday, the chief information officer said.
-4.73%
Finally pulled back, down 75% from its November 19, 2021 peak (currently down about 28%) and the S&P 500 SPX,
-4.04%
It’s down 45% since Jan. 3, 2022, which is the peak (which is currently down 18%) as we approach July.

“It’s a lot like the collapse of the internet bubble,” Minerd said, referring to the crash of tech stocks in 1999 and early 2000.

What drives the pessimism of Minerd? He fears the Federal Reserve has made it clear that it aims to keep raising rates, even though that could potentially rupture stock markets and elsewhere.

“What is clear to me” is that “there is no situation in the market, and I think we are all waking up to that fact now,” Minerd said.

The CIO was hinting at a so-called Fed put option, an acronym for believing the US central bank would rush to rescue troubled markets – an approach that past Fed chairs have rejected.

More on bear market concerns: Why do stocks go down? Inflation tensions are decimating the fragile ‘bear market’ rebound.

On Tuesday, Federal Reserve Chairman Jerome Powell also appeared to be trying to distance investors from the idea that the bank should be counted on to give investors a boost as monetary policymakers try to combat a huge dose of inflation.

“Restoring price stability is an unconditional need,” Powell said in an interview Tuesday during the Wall Street Journal’s “Futures of Everything” festival. “There may be some pain,” Powell added.

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Minerd said he believes the Fed will keep raising rates “until they see a clear break in the inflation trend” and that they are “willing to cross a neutral rate,” referring to the level of interest rates that neither stimulates nor constrains the economy.

Earlier this month, the Federal Reserve’s rate-setting committee raised the benchmark federal funds rate to a target of between 0.75% and 1%. It is expected to raise interest rates by at least 50 basis points at the June 14-15 meeting, as US inflation hit an 8.3% annual rate in April, according to the Labor Department, well above the Federal Reserve’s target rate of 2%.

The Guggenheim CEO said a May 13 gathering of former federal policymakers and prominent economists, including John Taylor, John Cochran and Michael de Purdue, hosted by the Hoover Institution after the May meeting, made him take a more bearish stance. The position of the stock and the market as a whole.

Read also: Is it now or not for stocks to rise? Bank of America says fund managers’ cash pile is the largest since 2001.

He said that Hoover’s attendees estimated that the Fed would need to raise interest rates to 3.5% to 8% to reach neutrality, which suggested to him that the central bank might need to raise rates for something to happen in the economy or markets, or both, breaks.

Minerd said the Fed appears to have “very little concern about the continuation of what I think is a bear market right now.” If that’s the case, he said, “we’d probably have a pretty tough sell-off.” The investor said a severe recession could give central banks some pause, but that any respite from the increases may come only after much of the damage has already been done.

So, as long as the sell-off remains relatively orderly and we don’t have a crash, the Fed will continue to rise above inflation, and will justify unemployment by the time they get [to a neutral rate],” It is to explain.

Need to know: Why this investor who paid $650,000 to lunch with Buffett isn’t buying or selling stocks right now

Some Wall Street professionals, including Wells Fargo & Co. WFC,
-3.66%
CEO Charlie Scharf said it would be hard to avoid a recession on the back of higher interest rates, and Minerd agreed.

“When you start to rank all the data, ‘the summer of pain is where we’re headed,'” he noted, adding that by October, things may have bottomed out.

In a draft research report, reviewed by MarketWatch, Minerd said:

Over time as the Federal Reserve continues to rise, we will find ourselves suffering the effects of increasingly restrictive monetary policy. Long before that final interest rate reaches, the Fed will raise the risk of overstepping the line, causing a financial crash, and starting a recession.

Minerd said the Fed is heading for over-tightening of financial conditions just as employment is showing some resilience.

Guggenheim Partners

In a final check on Wednesday, the S&P 500, Nasdaq Composite and Dow Jones Industrial Average DJIA,
-3.57%
It’s down at least 3%, amid exorbitant selling.

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