A prominent fund manager has issued a stark prediction regarding the Nasdaq, projecting a potential drop of 35% over the course of this year. According to Slavik Kolesnik, co-manager of the highly-rated Leader Capital High Quality Income Fund (LCATX), pressures from inflation coupled with a liquidity crunch triggered by upcoming initial public offerings (IPOs) could significantly disrupt the current bull market.
Recent market volatility has underscored Kolesnik’s concerns, particularly with the Nasdaq experiencing a notable decline of 4.8% on June 5 alone. Kolesnik emphasized that these fluctuations serve as early indicators of a more pronounced downturn that is expected to follow. “That’s just the beginning,” he stated, underlining the precarious nature of the market environment.
A key factor driving his outlook is the influx of mega-IPOs slated for this year, notably kicking off with SpaceX’s much-anticipated debut. Kolesnik highlighted that such IPOs are likely to attract substantial inflows from investors, suggesting that this capital will likely be reallocated from existing stocks. He specifically pointed to the “Magnificent Seven” — a select group of tech giants that comprise a large portion of major indices like the Nasdaq — as a primary source for this funding shift.
SpaceX’s IPO has demonstrated extraordinary investor interest, reportedly becoming around four times oversubscribed. Furthermore, additional IPOs from companies like Anthropic and OpenAI are also on the horizon, further intensifying this capital movement.
Kolesnik also indicated that persistent inflation is another critical concern, with the Consumer Price Index recorded at 4.2% year-over-year in May, marking its highest rate in three years. While core inflation, which typically excludes volatile food and energy prices, has remained more stable, Kolesnik warned that rising energy prices will likely permeate throughout the economy, exacerbating inflationary pressures.
As inflation rises, long-term bond yields tend to increase as well, reflecting investors’ expectations for prolonged higher interest rates. This environment is often detrimental to growth stocks, as their projected earnings become less favorable compared to the risk-free returns from government bonds. Kolesnik anticipates that Core PCE (Personal Consumption Expenditures) inflation could surge to around 4%, up from 3.3% year over year in April.
His investment strategy mirrors these inflationary concerns, featuring a portfolio primarily composed of holdings with shorter durations of 0-1 years or 3-5 years, which generally exhibit less sensitivity to inflation fluctuations compared to longer-duration assets.
In predicting a specific 35% decline for the Nasdaq, Kolesnik points to a return to its 200-day moving average, a significant technical benchmark that traders often monitor. As such dynamics unfold, market participants are bracing for a potentially turbulent period ahead.
