Billionaire investor Jeffrey Gundlach, known for his prescient market calls, painted a bleak picture for the S&P 500 and the US economy in a recent webcast.
Billionaire investor Jeffrey Gundlach, known for his prescient market calls, painted a bleak picture for the S&P 500 and the US economy in a recent webcast. Gundlach, CEO of DoubleLine Capital, declared that buying the benchmark index right now looks like a “pretty lousy trade,” citing several warning signs, including:
Double Top Threat: The S&P 500’s current level, hovering around where it started 2022 after last year’s 24% rally, resembles a “double top” technical pattern, historically a bearish signal. He warned, “This looks like a pretty lousy trade location with a double top going on.”
Earnings Doubts: Wall Street’s optimistic forecast of 11% earnings growth for S&P 500 companies this year casts doubt on the index’s ability to sustain its current level. “If that doesn’t come through, it’s going to be hard for the S&P 500 to sustain this level,” Gundlach stated.
Value Takes the Stage: After years of lagging behind, value stocks are poised to outperform their growth counterparts, according to Gundlach. He pointed to the sluggish performance of the “Magnificent Seven” tech stocks since July as a sign of shifting momentum.
Global Slump: Beyond the US, Gundlach believes the American stock market’s dominance is fading. He noted that international markets haven’t fallen behind in recent years, suggesting the S&P 500 is no longer the “world beater” it once was. Additionally, he expects a weakening dollar in the next recession, further dampening the S&P’s performance compared to emerging markets.
Recessionary Rumblings: Gundlach doesn’t mince words when it comes to the US economy. He sees a recession as highly likely, citing multiple converging factors:
- Inverted Yield Curve: The recent de-inversion of the yield curve, a historical recession indicator, adds to the alarm bells.
- Leading Indicators: Leading economic indicators have been trending downwards for some time, another ominous sign.
- Lagging Unemployment: The current low unemployment rate, partly due to employers holding onto workers, could “go vertical” once the slowdown hits, according to Gundlach.
Debt Dilemma: Gundlach’s concerns also extend to the ballooning national debt. He blames excessive public spending for this predicament, leading to higher interest rates, which in turn eat up a larger portion of government revenues. “We’re going to have a problem here,” he warned, adding, “This will get much worse when the recession comes.”
Gundlach concluded his webcast with a stark outlook for markets and the economy. While his views might not sit well with some, his track record of making accurate predictions commands attention. Investors would be wise to heed his warnings and carefully consider their positions in the face of these potential headwinds.
Key takeaways:
- Gundlach sees the S&P 500 as a “lousy trade” due to technical patterns, earnings uncertainty, and value’s potential rise.
- He expects a weakening dollar and underperformance compared to international markets.
- A US recession is highly likely, signaled by multiple economic indicators and rising debt levels.
- Investors should carefully consider their positions in light of these potential risks.