Economic challenges abound, and equities will rally. It’s a seemingly paradoxical view, but one espoused by one of the biggest players in the market. Scott Minerd thinks stocks have bottomed, and will rally from here.
Minerd is chief investment officer at Guggenheim Partners, helping oversee the firm’s $255 billion in assets. He told Yahoo Finance Live that stocks can rise at least 10% from current levels going into next year.
“There’s an old saying that markets climb a wall of worry. We have a big wall ahead of us, which means that we can still have a big bull market,” he said from the Milken Institute Global Conference.
Minerd cites two main reasons for his optimism:
“There is still a lot of excess liquidity sloshing around the system,” he said. Even though global central banks are starting to remove stimulus (or at least talk about doing so), liquidity remains ample.
Secondly, “seasonal factors” are favorable to stocks: “Just around the time of the World Series (which the Dodgers will win this year), the market tends to rally,” he added.
The closely-watched monthly fund manager survey from Bank of America-Merrill Lynch seems to indicate similar sentiment. By many measures those surveyed are more bearish: their cash positions rose to the highest in a year, and global economic growth expectations went south for the first time since April 2020.
At the same time, they’re still holding stocks, with a 50% weighting. The overwhelming threat, as well as motivation, appears to be inflation, with 48% citing it as their top risk. It’s also informing investment decisions, driving fund managers into banks and out of utilities, a classic trade when interest rates are seen rising.
Minerd’s not overly concerned about inflation, but he does worry that the looming property-debt crisis in China will eventually spread to the U.S. While the Evergrande situation may be contained, “the problem is that 20% to 30% of the economic output in China is related to property development,” and the working-through of that inventory could lead to an economic slowdown, which could affect the U.S. by the second half of next year.
In the meantime, stocks have slipped and rebounded, with the S&P 500 dropping 5%. between Sept. 2 and Oct. 4, then rebounding to near its all-time closing high of 4536.95. The benchmark has risen 20% this year.
Julie Hyman is the co-anchor of Yahoo Finance Live, weekdays 9am-11am ET. Follow her on Twitter @juleshyman, and read her other stories.
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