Billionaire ‘Bond King’ Jeffrey Gundlach Warns Stock Market Rallying on Hope, Says Equities Have Priced in ‘A Lot of Rate Cuts’

By Henry Kanapi

DoubleLine Capital CEO Jeffrey Gundlach says he’s concerned about the overstretched valuations of equities, warning that the asset class is rallying not because of market fundamentals.

In a new CNBC interview, the billionaire ‘Bond King’ says US equities appear to be rallying based on hope, as investors believe that Fed rate cuts will push the stock market to higher levels.

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But Gundlach warns that the stock and bond markets have priced in future rate cuts. He says that investors would be better served if they invested in markets outside the US.

“Well, stocks have priced in, as has the bond market, a lot of rate cuts. And one thing I’ve been struck by is how every time there’s talk of more interest rate cuts, or that an interest rate cut is coming, the stock market rallies day after day after day, just on the same hope, like the 50-basis-point hope, was, I think, exaggerated by investors, that they thought, maybe we get a 50, and maybe that’s what we got the last several percentage points up in the stock market.

But I don’t really like US stocks as a dollar-based investor. I’ve felt that way all year, and I continue to feel that way. You’re really better off in non-dollar markets, and they are all up similar amounts. There’s some dispersion, but there are similar amounts on an index basis. But when you translate the currency, you end up with tremendous results out of some of these stock markets. I mean, I think and also bond markets like the Mexican bond market for dollar-based investors is up like 35% year-to-date.”

Gundlach has been bearish on the US dollar. In June, he said that the US dollar index (DXY), which tracks the performance of the dollar against a basket of major currencies, has been in a macro downtrend, expecting it to melt down if it loses a diagonal trendline at 97.

At time of writing, the DXY is trading at 97.646.

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