Gundlach: Last Year’s Market Sell Off Was Just A ‘Taste of Things to Come’
The comments below are an edited and abridged synopsis of an article by Julia LaRoche
Late last year, the S&P 500 tumbled 20% from its October 3 intraday high to its December 24 intraday. Despite the market’s sharp 17% rally from those lows, bond king Jeffrey Gundlach says we’re in a bear market and that we could see new lows.
“A bear market has nothing to do with this 20% arbitrary thing,” Gundlach, CEO of $121-billion DoubleLine Capital, said. “It has to do with something crazy happening first, and then the crazy thing gives it up. And yet more traditional things continue to march on. But one by one they give it up.”
That crazy thing: Bitcoin.
“Bitcoin going from zero to 20,000 in a straight line,” Gundlach said. “It was crazy.”
The global stock market peaked and turned, followed by stock market sectors peaking and turning like dominos. The last of those dominos included Amazon and Apple.
On October 3 it was over, and December’s dip buyers will sell at lower levels
The market has since been saved by the Fed’s pivot to be patient on monetary policy and the subsequent rally in the bond market, all of which has kept interest rates low… for now.
“If the long end of rates starts to rise, as I expect, and if we break through 3.50% on the 30-year, I think it’s over,” Gundlach said. “Because the competition from the bond market, particularly against a climate of limiting one of the engines of stock price appreciation, which is buybacks, is thought to be potentially in jeopardy.”
Gundlach believes that investors who bought during December’s dip will likely end up selling at a lower point. He has warned of the risks in the corporate bond market, but eventually, there will be an opportunity to put capital to work.