More tears are coming for investors holding risky assets, says Chief Investment Officer at Major Asset Manager


© Reuters. More tears are coming for investors holding risky assets, says Chief Investment Officer at Major Asset Manager

On Wednesday, the Fed raised its target federal funds rate by 0.75% to a new range of between 3% and 3.25%, its third rate hike of 0.75% in four months.

What happened: Scott Minerd, founding managing partner, chairman and global head of Guggenheim Partners appeared on CNBC’s “The Exchange” to discuss the Fed’s rate hike decision and the impact of the policy of the Fed on the direction of the market.

According to Minerd, a full 1.0 basis point hike would have been better, as there are more hikes to come in the future.

He mentioned that there is a very high probability that the Fed will tighten too much to prove its credibility, adding that it will continue to push until something breaks, most likely the stock market or emerging markets. .

Additionally, Minerd said, “I think the Fed is pushing hard on the market at the same time it is shrinking the balance sheet,” adding that we experienced this same scenario in 2018 when Fed Chairman Jerome Powell said. said: “Balance sheet reduction is on autopilot”.

Following Powell’s statement, the market fell 20% and the Fed was forced to pivot, raising rates and shrinking the balance sheet in the first quarter of 2019.

Jump to: Elon Musk calls out Fed for too much latency in rate decisions ahead of Tuesday’s meeting: ‘Problematic in a rapidly changing world’

Why it matters: With the potential for another 20% decline in mid-October, Minerd thinks investors who are long in risky assets will feel more pain, as the market has never touched the bottom. bottom as the Fed hiked rates.

Minerd indicated that the fourth quarter could be a very good time to buy equities, as he expects the Fed to slow its rate hikes, with a 50 basis point hike at the November meeting and a increase of 25 basis points in December.

As P/E multiples tend to be higher than historical averages in times of inflation and rising interest rates, Minerd expects market gains to be returned and a reduction in earnings forecasts. He points out that major delivery carriers such as FedEx Corp (NYSE:NYSE:) have already reported weaker earnings ahead of their first-quarter earnings release.

Earnings estimates could drop as much as 5% or 10% as the year-end approaches, especially with the Russian-Ukrainian war negatively impacting the global economy, Minerd said.

Photo: Arctic Circle from Flickr

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