The Fed raised its target funds rate by 0.75% to a new range of between 3% and 3.25%, its third 0.75% rate hike in four months.
What Happened: Scott Minerd, founding partner, chairman and global CIO of Guggenheim Partners appeared on CNBC's The Exchange to discuss the Fed's rate hike decision and how Fed policy will affect the direction of the market.
According to Minerd, a full 1.0 bps hike would have been better, as there is more hiking to come in the future.
He stated that there is a very high probability that the Fed will continue to push until something breaks, most likely the equities market or emerging markets.
Minerd said that the Fed is pushing hard on the market at the same time it is shrinking the balance sheet. In 2018 the market dropped 20% and the Fed had to pivot, raising rates and shrinking the balance sheet in the first quarter of 2019.
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Why it matters: With the potential for another 20% downside in mid-October, Minerd believes that investors who are long on risk assets will feel more pain, as the market has never bottomed while the Fed is raising rates.
Minerd said that the fourth quarter may be a good time to buy equities, because he believes that the Fed will slow down its rate hikes, with a 50 bps hike in November and a 25 bps hike in December.
Minerd expects market gains to be given back and a reduction in earnings guidance as P E multiples are trending higher than historical averages during times of inflation and rising interest rates. He points out that FedEx Corp FDX has already reported weaker earnings ahead of its first-quarter earnings release.
Earnings estimates could come down by as much as 5% or 10% as we head into the end of the year, especially with Russia-Ukraine war negatively impacting the global economy, Minerd said.