Billionaire “Bond King” Jeffrey Gundlach says the stock market is struggling to sustain rallies due to a massive expense draining the government’s coffers.
In a new CNBC interview, the CEO of investment management firm DoubleLine Capital points out that the S&P 500 has given up most of its gains since the Federal Reserve began its rate-cutting cycle in Q3 2024.
[adinserter block="1"]According to Gundlach, risk assets like equities tend to witness upside bursts when the Fed slashes interest rates. With the S&P500 plummeting to a level last seen in September of last year, Gundlach says the bearish price action indicates a deeper issue is troubling the stock market.
“Since the Fed starting cutting rates back in September, bond yields are still up and the stock market is doing very, very little since then. So this is an unusual time period where the Fed cutting rates by 100 basis points and talking about two more, we have not seen a rally in the 10-year Treasury bond…
We have also not really had a rally in stocks since the Fed started cutting interest rates. There’s that old phrase ‘Don’t fight the Fed,’ which is supposed to mean that if the Fed is cutting, you’re supposed to stay long risk but it sort of isn’t working this time.
I think that’s going to continue to be a theme as we move forward in time.
I think that we really have a big problem… with this interest expense. It’s over $3 billion a day in interest expense on the Treasury debt.”
Interest expense is the interest paid by the US government to holders of its $36.22 trillion national debt. The nonpartisan, nonprofit Committee for a Responsible Federal Budget (CRFB) says data from the Treasury Department showed that the government paid $882 billion in interest costs during the 2024 fiscal year, which ran from October 1st, 2023 to September 30th, 2024.
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