With the Nasdaq falling 5%, it’s largest one-day drop since March, the S&P 500 dropping 3.5% and the Dow Jones Industrial Average slipping 2.8%, investors are facing a startling question: is this the beginning of the end of the stock market rally?
At least one billionaire investor says “no” but others aren’t so sure.
“It’s certainly not the beginning of the end, but I would say we’re coming upon one of the more uncertain periods in American history… and uncertainty is the enemy of the markets,” says Bill Ackman, who runs the Pershing Square hedge fund.
Ackman famously pulled off the “single best trade of all time” earlier this year. At that time, he bet $27 million against the market just before the plunge in February. He turned that into a $2.6 billion windfall.
Ackman Shares Expectations
During an interview with Bloomberg, Ackman says this isn’t the beginning of the end. However, he adds that after such a strong recovery from the March lows a sharp pullback shouldn’t have been a surprise.
“The markets have been remarkably strong since really the third week in March, and so it’s not surprising. Valuations, certainly in the technology landscape have gotten to some pretty extraordinary levels, so I think it’s not a surprise, it’s not any indication of the beginning of the end,” says Ackman.
He does expect some volatility going forward until the market knows who will win the election in November.
“Markets don’t like uncertainty and we have an election in 60 days where it’s a toss up who’s going to be the next President, and what the policies of the next President, whether it’s Trump’s second term or Biden’s first term, what that means for the country, what it means for corporate America, what it means for taxation, these are uncertain issues, and uncertainty is the enemy of the markets.”
While others aren’t calling for an outright crash, they say we could see further declines before things level out.
Another Drop Possible
Mohamed El-Erian, the chief economist at Allianz, says we could see another 10% drop. The economist says this may happen if investors believe once again that fundamentals matter.
“We could have another 10% fall, easily … if people start thinking fundamentals,” El-Erian said, adding “If the mindset changes from technicals to fundamentals then this market has further to go. But it remains to be seen whether it will change.”
He says the “DNA” of investors will decide if the change happens.
“That is the tug of war that’s going to play out, and it’s going to show the DNA of investors.”
Liz Ann Sonders, chief investment strategist at Charles Schwab, said during an interview with CNBC that the strength of yesterday’s drop could indicate more selling will happen on the horizon.
“I’m not sure that just today’s weakness is sufficient enough to ease some of those excesses and tell the short-term folks this is the kind of dip you want to buy. I don’t have a clear crystal ball more than anybody else, but certainly the excess suggests something more than a single-day compression in the high-flyers may be necessary to kind of right the ship.”