A Repeat of 2018’s Rout Is Likely Coming, Veteran Investor Says

(Bloomberg) -- Investors may be in store for something of a repeat of the turmoil of late 2018, when U.S. stocks barely escaped entering a bear market, according to one veteran market player.

A combination of liquidity strains, insufficient support from the Federal Reserve and uncertainty surrounding political-economic issues could combine to impose pressure on markets in coming weeks, Ben Emons, a managing director of macro strategy at Medley Global Advisors, told Bloomberg Television.

“A little bit shades of 2018,” Emons said of what’s likely coming. “The market’s very cautious here going into this year-end, and there is some level of comparison to what happened last year.”

Last month’s spike in interest rates for repurchase agreements showcased a lack of liquidity in money markets even before the year-end period when such concerns typically escalate. Federal Reserve officials have moved to address those repo problems, and have indicated they’re open to resuming bond purchases to address the technical issue of insufficient bank reserves.

“That will take some time to catch up” with the financial system’s needs, however, according to Emons. “That may alleviate at some point a bit the funding pressures that we see, but it will not be by year-end. It will be more by the second quarter of next year.”

And while that strain remains on financial markets, investors will at the same time need to cope with any deepening in trade tensions, the former Pacific Investment Management Co. portfolio manager said.

The U.S. is scheduled to enact further tariff hikes on Chinese goods on Oct. 15 and again Dec. 15. That raises the stakes for the high-level talks scheduled in Washington later this week. Geopolitical concerns, including around Hong Kong, are also a worry, Emons said.

JPMorgan Chase & Co. analysis has also suggested that further market pain may be in store. John Normand, the bank’s head of cross-asset fundamental strategy, said a range of indicators, including investment positioning, suggested a “moderate” correction.

--With assistance from Shery Ahn and Paul Allen.

To contact the reporter on this story: Christopher Anstey in Tokyo at canstey@bloomberg.net

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Cormac Mullen, Joanna Ossinger

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