- Mark Mobius believes investors are in for more pain as interest rates rise.
- Technology stocks in particular will struggle as their cash flow dries up, the investment legend said.
- “We are already in a bear market, but the end requires full commitment from investors,” Mobius said.
According to emerging markets investor Mark Mobius, the continuation of the US Federal Reserve’s rate-hiking cycle will lead to further downside for equities.
In a recent interview, the veteran fund manager warned that even though the S&P 500 is up more than 8% over the past month, investors are still in for more pain.
“We probably have another leg down as the Fed keeps raising rates,” Mobius told MarketWatch last week. “I expect interest rates to go up a lot, and that means a lot of companies will be in trouble.”
Investors have grappled with rising interest rates since March as the US Federal Reserve seeks to rein in inflation – which hit a 41-year high of 9.1% in June.
But last month Fed Chair Jerome Powell indicated that he prefers a softer, more data-driven approach to rate hikes.
Mobius previously predicted that rates would need to be raised to 7% to bring inflation down to the Fed’s 2% target range. He warned that the Fed is likely to be optimistic, which would create further headwinds for ailing growth stocks.
“I expect interest rates to go up a lot,” Mobius said. “That means … glamorous tech stocks with no earnings and dependent on larger cash inputs will run into trouble.”
Even after last month’s rebound, the S&P 500 and Nasdaq are down 13.3 percent and 19.6 percent, respectively, year over year. Mobius said he expects the sell-off to continue until the market reaches the point of “complete capitulation.”
“Of course, we should be aware that we are already in a bear market, but the end game requires full commitment from investors,” he said. “There are a lot of hopes at the moment.”
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