Jeffrey Gundlach, CEO and chief investment officer of DoubleLine, warned Tuesday on stage at an ETF conference in Miami that a “disaster” for the markets, in 2023, was likely to come on Tuesday.
Gundlach said the Treasury market yield curve indicates “problems ahead,” referring to the recent two-year TMUBMUSD02Y reversal,
and returns 10 years TMUBMUSD10Y,
historically preceded the recession. He warned that the composition in the stock market is “very similar” to that seen in the fourth quarter of 1999, referring to the period before the dotcom bubble burst.
The S&P 500 has been “significantly boosted” by quantitative easing and lower rates under central banking policy, according to Gundlach, who said he favors stocks outside the US “one of the hardest things” in investing is “to change after you’ve been on my way.” right”.
Although the S&P 500 has seen unusually strong trades over the past few years, it has fallen so far in 2022 amid growing concern about the Russia-Ukraine war and expectations that the Federal Reserve will combat soaring inflation in part by raising interest rates. Gundlach said he expects European stocks to outperform the United States, especially when a recession hits.
“You’re supposed to be on the lookout for a recession, and so are we,” Gundlash, better known as the Bond King, said when bond yields over 2 and 10 years flip. “I’m not looking for a recession this year because it takes time.”
The yield on two-year Treasuries briefly surpassed the 10-year yield recently. Continuous reversal of this measure of the curve has been a reliable indicator of stagnation, although usually with a delay of more than a year.
Gundlach, who also sees the investment inversion as a cause for concern, said the fact that 10-year yields have slipped above 2-year yields “is no cause for celebration if you’re looking for economic growth.”
Meanwhile, the cost of living is “much higher” than the rise in the CPI, according to Gundlach, who said wage growth and rising rents will be important drivers of inflation this year.
The consumer price index jumped 1.2% in March, supported by higher costs of gasoline, food and housing, according to statment Tuesday from the US Bureau of Labor Statistics. It was the biggest monthly gain since Hurricane Katrina in 2005, pushing inflation over the past year to 8.5% — the highest rate since January 1982.
But core inflation, which excludes food and energy, rose just 0.3% in March for the smallest increase in six months and a possible sign that the rising cost of living may be at its peak.
“We think inflation will go down” this year, Gundlach said, but it remains high. He predicted that it will likely drop to about 6%.
Gundlach also lamented about 2022 for fixed income so far. With some core bond funds down 12% this year, “we’re talking about a huge bear market,” he said. Who wants to be the ‘king of bonds’ these days?
Major US stock indexes rose Tuesday afternoon, with the S&P 500 SPX,
rose about 0.5%, the Dow Jones Industrial Average,
Gain 0.3% and Nasdaq Composite,
A rise of 0.7%, according to FactSet data, on recent inspection.
Within fixed income, the yield on the 10-year Treasury was down about 9 basis points at about 2.68% on Tuesday afternoon, according to FactSet. The two-year yield is trading below that level, at around 2.38%.