Billionaire investor Jeff Gundlach predicts the S&P500 index will fall by another 20-25%

The billionaire, investor and also the man nicknamed the bond king predicts the future outlook, but also backs it up with arguments, explaining the various implications of these moves. What makes this article special? It will be primarily about presenting Jeff Gundlach's concerns, opinions and arguments, to which he also adds his strategy that he will use in each situation.

Jeff Gundlach

Who is Jeff Gundlach?

Gundlach is the co-founder of DoubleLine Capital, a mutual fund that manages more than $140 billion in assets. The extraordinary bond trader is known for his bold challenges and correctly predicted the 2007 housing crash.

  • This is a very experienced investor who certainly has something to tell us about the current topic.

Where does Gundlach see the big problem?

Billionaire investor Jeff Gundlach expects the S&P 500 index to fall to 3,000 or about a 20% to 25% drop from current levels.

"Credit market activity is consistent with economic weakness and problems in the stock market," DoubleLine's Gundlach said in an interview. "I think we need to start being more bearish."

  • Gundlach said he believes the Fed should raise rates by 25 bps, though he expects the Fed to implement a 75 bps hike when it meets again.
  • Why would he vote for 25bps? It's because of concerns about potential overshooting. Policymakers also haven't stopped long enough to see what impact previous hikes have already had, he said in an interview.

Why does he expect the S&P 500 to fall so sharply?

The worse-than-forecast CPI data Wall Street received may lead the Fed to hike 75bps. "The risk of deflation is much higher today with this than it has been in the last two years," Gundlach said.

  • Gundlach's comments come after prominent investor Scott Minerd said Thursday that he expects stocks to fall another 20% by mid-October, citing the historical link between stock price-to-earnings ratios and inflation.

In particular, Jeffrey Gundlach worries that the Fed will stifle economic growth by raising interest rates too quickly.

Market sentiment is moving in the opposite direction. Meanwhile, the overnight index swap contract for September 2022 rose as high as 3.14% at one stage last Tuesday, 81 basis points higher than the Fed's current effective rate, suggesting that a minimum tightening of 75 basis points is seen as a sure thing for next week.

  • Gundlach regularly warns that the economy is not that strong at the moment, which is borne out by new data, but it also lends some credence to his words.

(329) The economy isn't as strong as people say, warns DoubleLine CEO Jeffrey Gundlach - YouTube

Gundlach isn't the only skeptic. For example, this is what the president of Harvard University says:

If there was a choice between a 50 basis point move and a 100 basis point move, then the Fed should choose "a 100 basis point move to bolster credibility," said Summers, who is now president emeritus of Harvard University.

Tuesday's CPI report "confirms that the U.S. has a serious inflation problem," Summers said.

What strategy is Gundlach choosing for the current period?

  • Gundlach recommends investors buy long-term Treasury bonds. He alsoowns more European stocks than U.S. stocks, which I find surprising (skeptics of Europe have been mostly increasing lately).
  • Gundlach said he plans to buy shares of emerging market companies when the US dollar falls below its 200-day moving average.

"And when that happens, I want to go big," Gundlach explained.

  • Gundlach also said he won't be a buyer of cryptocurrencies during a market washout.

Gundlach's last few thoughts 👇

Investors are raising expectations about how high they think the central bank could eventually push monetary policy rates toward around 4.3% in early 2023, though there appears to be growing concern about whether that could also cripple economic activity in a way that would force them to ease policy again before the end of 2023.

Swaps associated with the Fed meeting dates suggest the benchmark will be at less than 3.8% by the end of this year. It also suggests some chance that officials could try to raise rates by a full percentage point, and some analysts have begun to shift their views toward that scenario in response. However, with Fed officials in the run-up to the meeting, there is little chance that the central bank will officially lay the groundwork for such a change, so all eyes will be on sentiment in the markets and the media.

  • What do you think of Jeff Gundlach's views and strategy? 🤔

Please note that this is not financial advice. Every investment must go through a thorough analysis.

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All eyes will be on sentiment in the markets and the media.

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