The stock market continued with its theme of volatility on Monday as US stocks posted early gains only to give most of them up as the trading day progressed. Tech stocks once again felt the pain, with all of the much-lauded FAANG group of companies losing ground, led by Amazon which fell more than five per cent. But the bull market isn’t over yet, says Scott Minerd, CIO of Guggenheim Partners, who claims that we’ve got a good 15 to 20 per cent more upside left.
“I made a comment back in August that it was a good time to sell based upon seasonals, that people were ignoring the risks in the market around Italy and China and the trade wars, and I think we’re going through a classic seasonal adjustment. A correction here is healthy,” says Minerd, in conversation with CNBC.
Earlier this month, Minerd set the stage by calling the impending downturn in the US economy “an iceberg looming in the distant darkness,” but he maintains that there’s still a lot of open ocean between that iceberg and the current state of affairs.
“The tweet about the looming iceberg in the dark is about the fiscal drag which is going to come in 2020 and the fact that the US Federal Reserve will have to continue to raise rates and that this is ultimately going to kill the bull market,” he says.
“Having said that, markets tend to continue to rise until after the Fed’s last rate increase, and I think the seasonals are now starting to turn positive,” he says. “History shows us that when we have these corrections, the market bottoms 50 per cent of the time in October. If it doesn’t bottom in October, [it does so] about 30 per cent of the time in November.”
As of Monday, the S&P 500 Index is down nine per cent for October, the Dow Jones Industrial Average is down over seven per cent and the NASDAQ is down over 11 per cent. The S&P/TSX Composite Index is down over seven per cent for the month.
Minerd says that while there is still substantial growth left in the market, the same might not be the case for the tech sector.
“I don’t know if I’d be going into technology,” Minerd says. “It has had a phenomenal run. Look at the multiple on Amazon, it’s at 130x [forward earnings], but go to the emerging markets and Tencent which is growing just as fast as Amazon is trading at a 35x multiple. So I think that the place to go is some of the places that haven’t participated in the rally here in the US and I think a lot of those companies are in emerging markets.”
“When you look at forward P/Es of 16x and you see historical P/Es at 19x, given a treasury rate of around three to three-and-a-quarter per cent, that would leave us with 15 to 20 per cent of room to the upside before the bull market ends,” he says.