Hedge fund says hard landing is 'most likely' and names 3 global stocks to play it

Published Mon, May 15 20238:06 PM EDT

A U.S.-based hedge fund is predicting a hard landing scenario for stock markets despite a steady decline in inflation, with the S & P 500 falling into a bear market. David Neuhauser, chief investment officer at Livermore Partners, said that while the gradual decline in the inflation rate over the past year is a positive sign for the economy, he expects prices to remain stubbornly high for an extended period. "Livermore views the path forward as the most likely scenario for markets is a hard landing," Neuhauser said in notes to CNBC. Earlier this month, the U.S. Labor Department reported that inflation in April stood at 4.9%, less than the 5% recorded in March. To bring price rises back under its 2% target, the U.S. Federal Reserve has raised interest rates to a range of 5% and 5.25% over the past year. The hedge fund manager added that despite this "soft landing" in inflation, "ultimately it's going to lead to a much harder landing with stocks as inflation remains sticky for some time to come." S & P 500 As stocks have risen since October on expectations of a cut in interest rates this year, they are likely to fall if none occurs, according to Neuhauser. He said the S & P 500 could decline by more than 20% under such a scenario, with the SPDR S & P 500 ETF Trust , which tracks the benchmark index and trades as SPY, falling to $320 a unit from its current $412 price. The hedge fund manager identified three global stocks that he believes will perform well if this scenario comes to fruition. Ferrari The first is Ferrari , a high-margin automaker with a significant market presence among ultra-high-net-worth individuals. As inflation rises, companies serving the wealthy have outperformed as their customers are not as sensitive to price rises. The trend is also evident in the automotive sector. For example, Ferrari, which makes about 14,000 cars annually, is currently valued at 53 billion euros ($58 billion), compared to mass-market car maker Stellantis, which produces 6 million vehicles every year and is valued around 48 billion euros. Ferrari also reported a 24% jump in net profit and an increase in its waiting list earlier this month. Its financial results contrast with the wider automotive sector, which is struggling due to supply chain problems and rising costs. Jadestone Energy Neuhauser also named beaten-down London-listed oil and gas producer Jadestone Energy as one of his stock picks. The hedge fund manager was optimistic about the energy company despite setbacks due to production issues. "You're starting to see that turn on them, where it looks like a very low to high cashflow company. So we're starting to see the dynamics taking hold going forward in the next year," Neuhauser told CNBC Asia on May 11. Amaroq Minerals The third stock pick is Amaroq Minerals , an Icelandic company engaged in gold and mineral exploration. Neuhauser said the company is set for "strong cash flows" as it is about to construct its first mine. The company already owns high-grade gold and copper assets in southern Greenland. As gold prices — often viewed as a hedge against inflation — rise, companies mining the metal benefit from bigger profit margins. Livermore, the hedge fund founded by Neuhauser in 2009, owns shares in Amaroq, along with billionaire investor Louis Bacon.