Guggenheim's Minerd: Equities and High Yield Debt Are Vulnerable To A Near-Term Setback

Scott Minerd, Chief Investment Officer of Guggenheim Partners, said to prepare for price volatility in his most recent Macro View titled 'A More Mature Bull Market' (emphasis mine).

"CIO Commentary by Scott Minerd

Asset valuations are becoming more extended, making risk assets such as equities and below investment grade debt vulnerable to a near-term setback. For the past five years, risk assets were fundamentally cheap, providing a cushion against market noise and periodic setbacks. We are transitioning into a period, though, in which bargains are much harder to come by in many of the major asset classes. High yield debt and corporate bonds, in particular, appear overbought at current levels. Although these markets are not exhibiting signs of a bubble, stretched valuations make these asset classes more sensitive to bad news. Despite the favorable longer-term economic outlook, investors should be prepared for the type of price volatility which is characteristic of more mature bull markets." (continue...)

He also showed an interesting chart of the S&P 500 and Citi Macro Risk Index's massive divergence/correlation breakdown, which he believes is flashing a warning signal for the stock market. The correlation broke down in January (see the S&P 500 and Copper's negative correlation as well).

Source: Citigroup, Bloomberg, Guggenheim Investments. Data as of 3/22/2013.

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