By Divya Chowdhury
Aug 7 – Easing uncertainty will likely drive U.S. stocks higher after the Nov. 3 presidential election, regardless of whether Democratic candidate Joe Biden or Republican President Donald Trump wins, Scott Minerd of Guggenheim Investments said.
Minerd, chairman of investments and global CIO at Guggenheim, said he expects small-cap and mid-cap stocks along with cyclicals, which have lagged in the current rally, to outperform tech as the economy continues to recover.
“Small- and mid-cap stocks along with cyclicals have languished as a result of earnings uncertainty,” Minerd, who oversees $260 billion at Guggenheim, told the Reuters Global Markets Forum on Friday.
“As the economy recovers, the stocks which have lagged in the current rally should outperform tech going forward between here and the election.”
The S&P 500 has advanced around 50% from its March lows in a move fueled by unprecedented stimulus from U.S. policymakers and hopes of an eventual economic recovery.
Minerd also believes the dollar will correct another 5% to 10% from its current level.
“Certainly, the dollar has more downside risk from here, especially given concerns about growing risks about unbridled government spending and trade tensions overseas,” he said.
“The dollar would not find stability and would not regain its footing until the DXY falls another 5%-10%.”
He also expects the U.S. Federal Reserve to extend its forward guidance to keeping short-term interest rates low for the next three to five years.
“After that, the most likely policy option would be to move to yield curve caps, which would represent a pledge not to allow bond rates to rise above a certain level, i.e., the 10-year would not be able to trade above 50 basis points,” he added.
The surge in U.S. coronavirus cases is beginning to slow the economic recovery, Federal Reserve Chairman Jerome Powell said on Wednesday after the Fed said it was leaving interest rates near zero, promising the central bank would “do what we can, and for as long as it takes,” to limit damage and boost growth.
Minerd said he expects market pressures to push yields on 10-year and shorter-dated U.S. treasuries into negative territory. Longer-term yields will likely fall to levels substantially below 1%, he said.
Ten-year Treasury yields stood at 0.5640% on Friday afternoon, while those on the 30-year were at 1.2305%.
“I think it’s very likely that ultimately, market pressures will push Treasury yields into negative territory, which will pull down long-term treasury bond yields to levels substantially below 1%.” (This interview was conducted in the Reuters Global Markets Forum, a chat room hosted on the Refinitiv Messenger platform. Sign up here to join GMF: https://refini.tv/33uoFoQ) (Reporting by Divya Chowdhury and Aaron Saldanha in Bengaluru Additional reporting by Kate Duguid in New York Editing by Matthew Lewis)