October’s roller coaster of volatility saw something that doesn’t happen often–both stocks and bonds going on the same ride as the correlation between the two saw bond prices fall with U.S. equities as government yields rose. All in all, the activity in the bond market signaled to Canadian businessman and “Shark Tank” television personality Kevin O’Leary that October’s correction is more than a flash in the pan.
“I’m a bond guy,” said O’Leary on CNBC. “And a correction isn’t over until the bond lady sings.”
“And she’s not singing yet,” O’Leary added. “The BBB, BB, B complex–remember, most of these companies, the large cap ones, issue debt up their balance sheets and if you thought they couldn’t pay back that debt when these 36 months and four-year and five-year periods end because all this debt is coming due within seven years.
“If you really thought they couldn’t pay it back, you would’ve had a blowout in the credit markets–the B, BB, BBB markets. And they’ve barely moved so this correction is not over yet. I like it when the bonds are just blown out, then I know the toilet is flushed on the equity markets.”
O’Leary is keeping a watchful eye, specifically, on large cap companies that are brimming with debt due in the near-term. O’Leary also told CNBC that he expects bond yields to jump another 200 basis points, which would, in turn, signal that buying opportunities are abound in both the bond and stock market.
Treasury debt yields rising paired with a jump in rates have been prime factors to blame for October’s sell-off, and U.S. President Donald Trump has been a vocal critic of rising interest rates, using social media and speaking engagements to denigrate the Federal Reserve’s rate-hiking with respect to monetary policy. Just last month, the Fed increased the federal funds rate for the third time this year by 25 basis points and hinted that a rate hike in December is imminent given the growth of the economy.
Amidst October’s correction, the technology sector, in particular, received the brunt of the punishment as the S&P 500 followed the Nasdaq Composite into correction territory. While investors are seemingly running for the exits, O’Leary viewed the correction as a walk through the garden and was bullish on the U.S. economy.
“I’m bullish that the American economy is strong and this (correction), too, will resolve itself,” said O’Leary during a “CNBC Disruptor 50” segment. “To me, this is a garden variety correction. It could correct as much as 22 to 25% and if you can time the market, great.”
Related: S&P 500 Follows Nasdaq into Correction Territory as Tech is Trounced
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