December 15th, 2015

Guggenheim's Minerd warns the stock market's calm is merely the eye of a storm — and rising political and economic turmoil will lead to a big move lower

Scott MinerdLucy Nicholson/Reuters

Summary List Placement
  • Scott Minerd said on Friday that the current calm in the stock market is not the end of the storm but the eye, and political and economic turmoil will lead to a large move lower. 
  • Guggenheim's global investment chief said the lack of a fiscal stimulus before Election Day increases the likelihood of a negative GDP print in the fourth quarter and a "depression" for Main Street. 
  • He also said that a contested election will cause "political chaos" and a "sharp tightening in financial conditions" due to the uncertainty of who the next president will be. 
  • The investor added: "The eye of the storm is not a place to relax, but instead it is an opportunity to prepare for what is to follow."

"The relative calm we feel in the markets right now isn't the end of the storm, it is just the eye."

That's according to Guggenheim's Scott Minerd, who is warning investors that the current relatively low market volatility and faster-than-expected economic recovery is not a signal that the "storm" is over. In fact, the lack of fiscal stimulus, resurgence of COVID-19, and risk of a contested election will likely cause the market to go lower before it can resume its rise, he said in a Friday note.

Without a stimulus bill before Election Day, personal income will stagnate, job gains will slow down, consumers will pull back their spending, and small businesses could fail, the global chief investment officer said. 

He added: "The economic fallout from lack of fiscal actions increases the likelihood of a negative fourth quarter gross domestic product (GDP) print while Main Street remains in depression." 

The chief investment officer also said that the risk of a contested election is mounting, especially because of mail-in voting. A period where the winner of the election is not clear could give rise to political turmoil, he said.

Read more: A fund manager at a $468 billion firm pinpoints 7 portfolio moves to make right now in anticipation of a Biden presidency and Democrat-run government

"The subsequent political chaos could cause a sharp tightening in financial conditions, and a pullback in consumer spending and business investment due to the spike in uncertainty—a terrible outcome for our country at this stage of the recovery," said Minerd. 

However, the investment chief said that any pullback in risk assets will be a buying opportunity. He also reminded investors to "have more faith in the willingness and ability of our government to print money." 

"The Fed is almost out of ammo and the most potent firepower at its disposal is still the good old-fashioned printing press," Minerd said. "Central bank accommodation will continue to play a critical role in supporting credit availability at affordable terms." 

The investor added: "The eye of the storm is not a place to relax, but instead it is an opportunity to prepare for what is to follow."

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