- US stock markets will likely face much tougher conditions this summer, investor Scott Minerd said.
- The Nasdaq Composite and S&P 500 could plunge 75% and 45% respectively, he predicted.
- Minerd attributed an intense ruckus in the markets to the Fed’s tightening monetary policy.
The stock markets are in for a grim summer with the Nasdaq Composite and S&P 500 in for huge slides, according to Guggenheim’s Scott Minerd.
In an interview with MarketWatch Wednesday, billionaire investor Minerd said there’s a possibility of the Nasdaq Composite plunging 75% from last year’s peak and the S&P 500 dropping 45% from its top in the coming months.
He compared the possible implosion to the dot-com bubble burst of the 1990s. “That looks a lot like the collapse of the internet bubble,” he said.
Minerd’s pessimistic outlook is fueled by the Federal Reserve’s aggressively tightening monetary policy where interest rates have been lifted rapidly. It comes in response to soaring inflation as a result of pandemic-era fiscal support, global supply chain blockages and surging energy and commodity prices from the war in Ukraine.
He said the Fed is likely to raise rates even further until inflation cools down and “until they see a clear breaking of the inflation trend.” If that means the Fed will dial up the benchmark rate above what is considered a neutral rate, that’s what will happen, Minerd said.
“With the passage of time as the Fed continues to hike, we will likely find ourselves experiencing the effects of increasingly restrictive monetary policy. Well before it reaches this terminal rate the Fed will increase the risk of overshooting, causing a financial accident, and starting a
,” Minerd said in a research note.
With more possible rate hikes pending, Minerd said a recession will be hard to avoid. He echoes sentiments expressed by other industry experts including Goldman Sachs CEO David Solomon who recently said there is a “reasonable” chance that the US economy will enter a recession.
He added the Fed wrongly appears to have few concerns about a
in stocks. “We are probably going to have a pretty severe selloff,” he anticipated.
US stock markets have been caught in a brutal storm this year, with the tech-heavy Nasdaq and S&P 500 plunging. On Wednesday, US stock indexes fell further, suffering their biggest one-day loss since the peak of the pandemic, with the S&P 500 losing 4% and the Nasdaq 100 falling 5.1%.
in the market, the Fed is unlikely to cushion stocks from sliding even further, Minerd said. “What’s clear to me [is that] there is not market put, and I think we’re all waking to that fact now,” he said.
Against such a backdrop, stock markets are heading for a “summer of pain,” he added. He continued, predicting October is when stocks may hit a bottom.