Investors seeking to cash in on the last inning of the bull market have another year or so left as U.S. stocks are set to gain another 15% to 20%, and then plunge to 2007 highs, according to one market strategist.
Markets Typically Gain Until After Fed's Last Rate Increase
In a interview with CNBC on Friday, Scott Minerd, global chief investment officer and chair of investments at $265 billion Guggenheim, argued that there's still a large window of time to make profits before a dangerous hurricane hits in 2020.
His forecast implies a near 9% gain for the S&P 500 from recent highs to 3,190, marking a 21% return from Monday close.
"Stocks are cheap," stated Minerd. "Markets tend to continue to rise until after the Fed's last rate increase."
The Federal Reserve is expected to lift rates one final time before the end of 2018 and three more times next year. Despite concerns about interest rates, tariffs and other issues, Minerd argues seasonal factors are on stocks' side.
He points to a classic "seasonal correction" in the fall, wherein the market has historically bottomed 50% of the time in October. "If it doesn't bottom in October, about 30% of the time in November," he noted.
Guggenheim Is Very Bullish...And Also Very Bearish
|S&P Through 2019||Up 15% to 20%|
|S&P Through 2020||Down 40% to 50%|
Minerd acknowledged downside drivers including uncertainty around China and tariffs, yet expects the Trump administration to soften its stance, stating that it is "deeply concerned" about the market turbulence.
At the same time, Minerd predicts stocks may fall as much as 50% to their 2007 highs in 2020.
"If I am correct and markets go up another 15 to 20%, then we are looking for a sell from highs of 40 to 50%," said Minerd.
"We think we are going to see a pretty nasty bear market in the next recession," stated the Guggenheim investor.
Earlier this month, Minerd tweeted, "just as an iceberg loomed in the distant darkness to be struck by the Titanic under full steam, so the U.S. economy approaches the distant fiscal drag of 2020 under the full steam of rate hikes to contain inflation and an overheating labor market."
Other firms are less bullish short term. Goldman Sachs' US Weekly Kickstart report posted on Oct. 26 forecasted a modest 8% gain for the S&P 500 to 2,850 by the end of December.
Ultimately, the latest sell-offs highlight weak sectors such as housing, chips, materials and banks. This means that investors will have to be highly selective moving into 2019, while maintaining exit strategies to protect their portfolios in the case of a sooner-than-expected market collapse.