Richard Drew/AP
- Jeffrey Gundlach says the S&P 500 is a bad bet now and the Magnificent Seven will probably falter.
- The investor sees a 75% chance of a recession this year based on the yield curve and other signals.
- Gundlach expects inflation, interest rates, and unemployment to be higher than most expect.
The S&P 500 seems like a bad bet now, and the so-called Magnificent Seven stocks are likely to trail the wider market, Jeffrey Gundlach warned during a recent public webcast.
The billionaire investor and DoubleLine Capital CEO also pegged the probability of a recession this year at 75%, struck a bearish note on the dollar, and predicted higher inflation, interest rates, and unemployment than many on Wall Street expect.
Here are Gundlach's 10 best quotes, lightly edited for length and clarity:
1. "Rich enough for sure is the S&P 500. We've retraced all the way back up to a double top. Almost exactly two years later, we're basically at the same place. This looks like a pretty lousy trade location to own stocks."
2. "The US did not really outperform during 2023, and really that's been the case versus the rest of the world broadly for nearly two years. We're not really the world beater any longer."
3. "We'd be looking for a little bit of underperformance of the high flyers, the so-called Magnificent Seven and their ilk. They've gone dead sideways ever since July, and usually when you have these persistent trends start to struggle and stall out, it means that a trend change is coming."
4. "It will take a recession for the dollar to really break down hard. The value of the trade-weighted broad dollar is going to come down in the next recession, which means that the S&P 500 should underperform in the next recession." (Gundlach cited a historical correlation between the dollar's strength and the S&P 500's performance.)
5. "The curve deinverting is highly suggestive of recession, and the dollar is going to have big problems in the next recession, as a consequence of the policies that we run to try to deal with what could be a very painful recession."
6. "2024 is going to be highly volatile. I think we're going to see a decline in interest rates in the first part of the year, followed by a recession, followed by a recessionary response. We're loaded for bear and ready to go."
7. "The economy has a better than 50% chance of hitting a recession this year. It's more like a 75% chance of running into recession. It's going to be hard to sustain that double top in the S&P 500 with this type of expectation of earnings growth."
8. "If we get into recession this year, the unemployment rate will, per usual, go vertical. That's because once you start getting layoffs, you have an environment where it's okay to lay people off."
9. "We're going to have an inflationary response to the next period of economic weakness. It's going to be an inflationary situation, and it's going to cause a lot of angst, and a lot of inflationary policy is what we're going to run. So in the next recession, interest rates are not going to fall precipitously."
10. "When the next recession occurs — it may not be this year, but I think it will be this year — that is
going to mean that we're going to have an exploding problem with this debt." (Gundlach was reiterating his warning about the ballooning federal debt.)