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- Jeffrey Gundlach compared the AI-fueled boom in stocks to the dot-com bubble.
- DoubleLine Capital's billionaire CEO predicted sticky inflation and an economic slump.
- Two other market gurus, Bill Gross and John Hussman, warned of extreme stock valuations this week.
Jeffrey Gundlach has warned the AI-crazed stock market reminds him of the dot-com bubble — and predicted a painful mix of stubborn inflation and economic decline lies ahead.
"This feels a lot like 1999," DoubleLine Capital's CEO said on an X Spaces conversation this week.
The billionaire investor noted the Nasdaq index surged 80% in the fourth quarter of 1999, but 12 months later it was down 85% from its peak.
Gundlach described the current market as "grabby" and momentum-driven, and said he would only invest in an equal-weighted index as he's "not interested in owning seven stocks."
The fund manager was referring to the so-called Magnificent Seven, a group including Nvidia and Microsoft that has grown so large it accounts for a massive chunk of market cap-weighted indexes like the S&P 500 and Nasdaq 100.
Gundlach acknowledged that members like Meta are highly profitable, unlike their dot-com predecessors. But he repeated the old maxim that the faster and higher things go up, "the harder they fall."
"This is no place to be taking fresh, aggressive positions in anything risky," Gundlach said. "There's a lot of risk in markets that have run this far."
In addition to AI, the prospect of interest-rate cuts this year has sent stocks skyward. Lower rates tend to boost companies' sales by encouraging customers to spend instead of save, and usually lift corporate profits by cutting interest costs.
Gundlach warned that a recent increase in crude oil prices would probably accelerate inflation. He also cautioned that if growth falters, the Fed might cut rates too low and shrink its balance sheet too aggressively, causing prices to surge again.
"We're going to have an inflationary economic slowdown," he said, flagging the risk of a "stagflationary type of an environment."
Exuberance and bubbles
Bill Gross, another billionaire bond investor, echoed Gundlach's concern about overstretched stocks in an outlook published on Friday.
The PIMCO cofounder questioned why the market is trading at record highs when interest rates have jumped from virtually zero to north of 5% over the past two years. That's reduced the appeal of risky assets like stocks by lifting the guaranteed returns from Treasurys and savings accounts.
"Fiscal deficit spending and AI enthusiasm have been overriding factors and momentum, and 'irrational' exuberance have dominated markets since 2022," Gross said.
John Hussman, the president of Hussman Investment Trust, went a step further in a research note on Friday.
The longtime market bear warned that stocks have only been this extremely valued twice before: the day before the market peaked in January 2022, and at the height of the 1929 bubble that preceded the Wall Street Crash and Great Depression.
"My impression is that investors are presently enjoying the double-top of the most extreme speculative bubble in US financial history," Hussman said.