Why Guggenheim’s Scott Minerd Sees Stocks Falling Another 20% by Mid-October

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Guggenheim Securities Chief Investment Officer Scott Minerd expects stocks to drop another 20% by mid-October, citing the connection between price-to-earnings ratios and inflation.

“We should see stocks fall another 20% by mid-October…if historical seasonals mean anything,” Minerd said in a tweet.

Traders have struggled with concerns over how hawkish the Federal Reserve will be in its fight to tame historically high inflation. Other macroeconomic issues, like Europe’s energy crisis and strict Covid-19 lockdowns in China, also have dented investor sentiment. The

S&P 500
has fallen about 16% this year. Minerd expects stocks a sharp drop in equities through the middle of next month.

Following his tweet Thursday, Minerd was interviewed on CNBC where he said that “when you’re looking at history… it really is stark to see the price earnings ratio where it is.”

Minerd added that August through October is usually the worst time for stocks, and “given the recent strength over the last few days, it just appears that people are ignoring the macro backdrop, monetary policy backdrop, which would basically indicate that the bear market is intact and given where seasonals are and how far out of line we are historically with where the P/E is, we should see a really sharp adjustment in prices very fast.”

The S&P 500 has risen 1.3% this month. The

Dow Jones Industrial Average
has gained 0.8% and the

Nasdaq Composite
has risen 0.4%.

Minerd added that an argument could be made that earnings moving forward could “pick up” and that would help the price/earnings ratio, but “given the backdrop we’re in, which we may very well already be in a recession, I don’t see earnings picking up dramatically.”

“Actually, I see some downward pressure on earnings coming out of energy and other sectors where we’ve had price declines,” he said.

Write to Angela Palumbo at [email protected]