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Market Watch: A 'Summer of Pain'? The Nasdaq Composite Could Plunge 75% From Peak, S&P 500 Skid 45% From Its Top, Warns Guggenheim's Scott Minerd

May 18, 2022
Market Crash

Article by Mark DeCambre in Market Watch

The carnage playing out in the U.S. stock market Wednesday is likely an amuse-bouche compared to the devastation on the menu for the bulls in the coming months and years, Guggenheim Partners Global Chief Investment Officer Scott Minerd told MarketWatch in an interview.

The prominent CIO on Wednesday said he envisioned the possibility of a dreadful summer and fall for stock-market investors — one in which the Nasdaq Composite Index eventually unravels, plunging 75% from its Nov. 19, 2021 peak (currently it’s down around 28%) and the S&P 500 tumbles 45% from its Jan. 3 peak (presently down 18%), as we head into July.

“That looks a lot like the collapse of the internet bubble,” Minerd said, referring to the slow-motion downturn of technology stocks in 1999 and early 2000.

What’s driving Minerd’s pessimism? He fears that the Federal Reserve has made it abundantly clear that they are aiming to raise interest rates, despite the possibility that it could result in ructions in equity markets and elsewhere.

”What’s clear to me” is that “there is no market put and I think we’re all waking up to that fact now,” Minerd said.

The CIO was alluding to the so-called “Federal Reserve put option,” which is shorthand for the belief the U.S. central bank will rush in to rescue tanking markets — a notion that has been denied by previous Fed Chairman.

On Tuesday, Chairman Jerome Powell also appeared to try to disabuse investors of the notion that the Fed would be eager to throw investors a buoy as monetary policy makers attempt to combat an outsize dose of inflation.

“Restoring price stability is an unconditional need. It is something we have to do,” Powell said in an interview Tuesday during The Wall Street Journal’s Future of Everything Festival. “There could be some pain involved,” Powell added.

Minerd said he believed the Fed will continue to raise rates “until they see a clear breaking of the inflation trend and they are wiling to go above neutral rate,” referring to a level of interest rates that neither stimulates nor restrains the economy.

Earlier this month, the Fed’s rate-setting committee raised benchmark federal-funds rate to a target range between 0.75% and 1%. It is expected to raise rates about at least 50 basis points at its June 14-15 gathering, as U.S. inflation stood at an 8.3% annual rate in April, according to the Labor Department. That is well above the Fed’s target rate of 2%.

The Guggenheim executive said that a May 13 gathering of former Federal Reserve policy makers and prominent economists, caused him to take a more bearish stance on equities and the market as a whole.

He said attendees at that Hoover conference estimated that the Fed would need to take interest rates to 3.5% to 8% to hit neutral, which suggested to him that the U.S. central bank might need to dial up rates until something in the economy or markets, or both, breaks.

The Fed appears to have “very little concern about .......

To read this article in Market Watch in its entirety, click here.

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