Following the plunge of major market benchmarks with significant losses on Wednesday morning, Michael Schumacher, Wells Fargo’s (NYSE:WFC) head of macro strategy, warned that market turbulence may just be a preview of what’s to come.
“When you think about the U.S. elections, Covid worsening [and] all sorts of other news items coming out in the next couple of weeks, it could be a fairly scary time,” Schumacher told CNBC’s “Trading Nation.”
Wall Street sank again on Wednesday with the Nasdaq Composite losing 330 points while the Dow Jones and the S&P 500 printed their worst days since June 11. The nosedive was followed by the blue-chip index loosing all gains for October as soaring coronavirus infection rates now has market participants worried about the potential consequences for the economy.
While Wednesday’s massive sell-off was sparked by growing fears in rising coronavirus cases, Schumacher warns uncertainty over the impending U.S. presidential election has the potential to pummel stocks even more.
“One thing we pointed to for a while at Wells Fargo is the chance the election results are delayed. In that case, it’s almost certainly risk-off. So, a lot of reasons to be concerned over the next week to ten days,” he said. “Right now, it seems the virus has the upper hand, but it’s a very close call. And, frankly, these things are intertwined.”
Schumacher also talked about the softness in U.S. Treasury yields. In fact, the benchmark 10-year Treasury yield has been chopping lower for the past five trading sessions. On Wednesday, it closed at the anemic return of 0.774%. The yield was around 0.777% at time pf publication.
Schumacher believes yields will turn higher once lawmakers pass a new fiscal stimulus package. The strategist’s year-end target for the 10-year yield is 0.90% to 1%.