Market Watch: The Titanic As An Iceberg Loomed Is How Guggenheim Minerd Thinks Of Today Stock Market
Article by Mark DeCambre in Wall Street Journal Market Watch
Scott Minerd of Guggenheim Partners on Wednesday reiterated a warning that a one-two punch of pending rate increases by the Federal Reserve and a corporate-tax-cut-fueled fiscal deficit would ultimately upend the stock market’s bull run.
“Just as an iceberg loomed in the distant darkness to be struck by the Titanic under full steam, so the US economy approaches the distant fiscal drag of 2020 under the full steam of rate increases to contain inflation and an overheating labor market,” wrote Minerd.
Minerd has persistently cautioned that investors were enjoying a run-up in stocks that may prove short-lived. Timing aside, Wednesday’s downdraft suggests his narrative might have been spot-on.
Back in July, the chief investment officer for Guggenheim and one of the world’s pre-eminent bond-fund managers, said investors, who were enjoying climbing stock values, were whistling past the proverbial graveyard.
His admonishment now comes as the Dow Jones Industrial Average, the S&P 500 index and the Nasdaq Composite Index are flirting with their worst single-session declines since April, as a rapid rise in government bond yields ripples through markets. The 10-year Treasury note yielded 3.23%, near its highest level since 2011. The Fed has hiked rates three times so far in 2018 and is increasingly expected to do so again in December.
For his part, Minerd has been warning that climbing yields, which can translate to higher borrowing costs for corporations, would eventually punish Wall Street investors. He said a trillion-dollar deficit, partly resulting from President Donald Trump’s corporate tax cuts late last year could also exacerbate any rate climb and add to woes for borrowers and markets in coming years.
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