Recently, most of DoubleLine Capital CEO Jeffrey Gundlach‘s predictions have turned out to be true. His latest correct prediction was the December 2018 monster sell-off in the stock market. Thus, when he talks all investors listen and take notes. The renowned bond king who manages over $200 billion gave his latest predictions and thoughts on the markets in a Tuesday webcast.
He talked about a plethora of asset classes that include corporate credit, stocks, and bitcoin.
The Tug of War
Gundlach believes that 2019 will continue to be a volatile year. He expects the higher yields to hurt the stock markets in a ‘tug of war.’ The stock market is expected to maintain a push-pull with the rates expectations in future. He discussed about the difference between the bond market’s expectations and the Federal Reserve’s tightening agenda shown in its dot plot.
The market-implied rate hike odds have decreased significantly after the Fed Chair Jerome Powell confirmed that the central bank “will be patient” with the current monetary policy as it observes the economy. In mid-December, Gundlach had said that the S&P 500 had entered a bear market and it would slide lower.
His prediction came true on Christmas Eve when the index tumbled over 20% from its intraday record high. The market has bounced back since the turn of the New Year feeding on the optimism over US-China trade talks.
Gundlach also expects the famous yield curve to steepen in 2019. Wall Street worries about an inverted yield curve that ushers in a recession as it is proven from all historical trends.
Bitcoin to Rise to $5,000
In an unlikely prediction from Gundlach, who called Bitcoin the ‘the poster child‘ for the market and social moods, he believes the digital currency will gain up to 25% in 2019. Although he affirmed that he does not recommend anything to do with bitcoin, he believes that it is best for speculative purposes. He, however, advised that serious long-term investors should get out of bitcoin.
Gundlach ended by issuing warnings about the growing leverage both on a company level and government level. With the increasing weakening in corporate credit, he said that investors should turn to companies with strong balance sheets.
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