DEAD CAT BOUNCE MAKES FOR PURR-FECT TIME TO SELL.
Investment managers are warning that markets probably have further to fall as China’s growth slows, oil prices plunge and central bankers lack tools to prop up economies.
One of the world’s most famous investors says the historic volatility roiling stocks right now is fuelled by two consequential transitions in financial markets.
The Standard & Poor’s 500 index will drop another 10 per cent to 1650 and oil could fall as low as US$ 20 a barrel as investors flee for safety, according to Scott Minerd, chief investment officer of Guggenheim Partners.
Jeffrey Rottinghaus, whose T. Rowe Price mutual fund beat 99 per cent of rivals over the past year, said stock prices could fall another 10 percent as the U.S. economy slips into a mild recession.
“I expect a protracted decline in the S&P 500,” Jeffrey Gundlach, co-founder of DoubleLine Capital, said in an e-mailed response to questions. “Investors should sell the bounce-back rally which could come at any time.”
The S& P 500 fell as much as 3.7 per cent Wednesday, the most since August, before partially recovering to close at 1859.33, down 1.2 per cent. All 30 members of the Dow Jones industrial average were below prices at the beginning of the year, with the index down 1.6 per cent for the day and 9.5 per cent since Dec. 31. Oil fell 6.7 per cent to US$ 26.55, down 28 per cent year-to- date.
“Excessive risk exposure is adding to the selling pressure,” Gundlach said. “Today’s plunge into the lows looked like a margin- call liquidation type of event.”
Rottinghaus, manager of the US$203-million T. Rowe Price U. S. Large- Cap Core Fund, said “industrials and commodities have been in a recession for at least six months” in the U. S. “What we are trying to figure out is how much that bleeds into the consumer side of the economy,” he said in an interview.
Russ Koesterich, global chief investment strategist at BlackRock Inc., said there needs to be a fundamental catalyst to signal a market bottom, whether it comes from corporate earnings, economic data or an improvement in China.
“You need to have some stabilization of fundamentals to give people conviction this has gone too far,” Koesterich, whose firm is the world’s largest money manager, said in an interview. “Certainly you are getting closer to capitulation. The magnitude of the drop suggests that.”
Hedge fund manager Ray Dalio said global markets face risks to the downside as economies near the end of a long- term debt cycle. The Federal Reserve’s next move will be toward quantitative easing, rather than monetary tightening, the founder of Bridgewater Associates said in an interview with CNBC from the World Economic Forum in Davos. That won’t be easy, because rates are already so low, he said.
“When you hit zero, you can’t lower interest rates anymore,” Dalio said, according to a transcript of the interview. “That end of the longterm debt cycle is the issue that means that the risks are asymmetric on the downside because risks are comparatively high at the same time there’s not an ability to ease.”
The rout in global stocks is being fuelled by investors seeking to reduce leverage as central banks run out of options to prop up economies, according to Janus Capital Group Inc.’s Bill Gross.
“Real economies are being levered with QEs and negative interest rates to little effect,” said Gross, who manages the US$ 1.3- billion Janus Global Unconstrained Bond Fund. “Markets sense this lack of growth potential and observe recessions beginning in major emergingmarket economies.”
YOU ARE GETTING CLOSER TO CAPITULATION.