US stocks could tumble 15% in a rough fall – and the bitcoin bubble could deflate further this year, Guggenheim’s Scott Minerd says

Scott Minerd
Guggenheim Investments Global Chief Investment Officer Scott Minerd.

US equities could drop 15% by the end of October, driven lower by concern over the delta variant of COVID-19 and its impact on global growth, while cryptocurrencies could continue to face pressure, according to Guggenheim’s Scott Minerd.

The chief investment officer told Bloomberg on Wednesday that September and October are likely to be “very rough” months for stocks.

“Maybe a pullback of 15% or slightly more,” he said, adding that investors could get back into buying by the end of autumn.

Stock prices and bond yields recently fell sharply as growth fears sparked by the fast-spreading delta variant dented some of the market optimism. The Dow Jones slumped 2.1% at the start of the week in its biggest one-day drop since October, but stocks have slowly been clawing back gains.

That said, the benchmark US stock indices have all hit record highs this month and are not trading far below those levels. The S&P 500 hit a record 4,393.68 on July 14 and closed about 1% below that level on Tuesday.

Wall Street can expect a rise in volatility over the next few months, as the Federal Reserve could taper its asset purchases sooner than expected if pressure grows for the central bank to start to normalize interest rates, according to Minerd. He expects Treasury yields to decline by as much as 60 basis points if markets believe the economy will weaken. A drop of that size would take the 10-year Treasury note yield to its lowest since October.

For cryptocurrencies, July was the third consecutive month of negative returns. Minerd expects them to stay challenged in the near-term.

Minerd reiterated a $15,000 price prediction for bitcoin, a 53% decline from Thursday’s price of $32,190, and said “a lot of this stuff is just junk.” Still, he called ether a more viable currency than bitcoin.

“I think there’s still more air to come out,” he said. “The standard bear market for bitcoin has been an 80% retracement, and given all the uncertainty and the new competition from new coins, I think there’s more downside to go.”

Buying bitcoin anytime soon isn’t a good idea, according to him. He has previously compared cryptocurrencies to the 17th century tulip bubble. After pulling back significantly, Minerd has said he expects bitcoin to eventually rise to as much as $600,000 per coin.

Read More: The head economist at a blockchain fintech firm names 2 of the most promising crypto SPAC deals on his radar – and explains why blank-check companies can be better alternatives to buying cryptocurrencies

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Guggenheim’s Minerd says the 10-year Treasury yield could be negative next year and opposes consensus view that rates are on ‘uninterrupted trajectory higher’

Scott Minerd guggenheim

Guggenheim’s Scott Minerd squashed the consensus narrative that rates are on an “uninterrupted trajectory higher” and said the 10-year Treasury yield could be negative in 2022.

In his latest investment outlook letter published Tuesday, the global chief investment officer said rising rates are not a foregone conclusion and explained that throughout history, every recession has been followed by a trough in interest rates several quarters later. 

“Now, similar fears grip markets that reflationary pressures are paving the way to higher rates. No doubt, prices will rebound from post pandemic lows but given the surplus capacity throughout most of the economy and high levels of unemployment, any increase in the rate of inflation is likely transient,” Minerd said.

He explained that the flood of cash from the stimulus has driven short rates lower, as money continues to flood into the private sector, stock and bond prices continue to rise.

 “Over time, as stimulus payments and tax refunds are distributed and more money looks to be put to work, investors will extend maturities on their bond portfolios in a ‘reach for yield,'” he added. 

Against this backdrop, two-year Treasury note yields could go to 1 basis point or lower and 5-year Treasury notes could easily reach 10 basis points. 

“These levels would put downward pressure on 10-year Treasury rates, likely rendering the current yield unsustainable,” said Minerd.

In a chart, Guggenheim models the 10-year yield at -0.5% in January 2022, but that number is bounded by a two-standard deviation  range of a high of 1 percent and a low of -2.0 percent.

 

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