Gundlach on Recession, Fed Rate Cuts, Selling Into Stock Rallies

  • Veteran investor Jeffrey Gundlach said it’s inevitable that a US recession will strike in the near term. 
  • “The economic headwinds are building […] and I think the recession is here in a few months,” he said. 
  • Gundlach suggested investors should sell into stock market rallies, especially when the S&P 500 reaches a certain level. 

“Bond King” Jeffrey Gundlach has warned it’s only a matter of months before the US economy tips into a recession, whilst laying out what stock investors should do amid elevated volatility in financial markets. 

“The economic headwinds are building, we’ve been talking about this for a while, and I think the recession is here in a few months,” the DoubleLine CEO said in a CNBC interview on Monday, adding that the Fed will have to “act very dramatically.”

Gundlach predicts the Fed will cut interest rates “a couple times” this year, given the US economy is “clearly weak.”

Gundlach recently flagged “red alert recession signals”, pointing to the narrowing inversion between 2-year and 10-year bond yields – a market pattern that has preceded several economic downturns in the past. 

Investors see a 49% chance the central bank will keep interest rates on hold at its next policy meeting in May, while the odds of a 25-basis-point rate hike are at 51%, according to the CME FedWatch tool. At its last meeting earlier this month, the Fed raised benchmark rates by 25 basis points even as the financial sector faced a period of turmoil marked by multiple bank failures. 

Meanwhile, Gundlach said the best way to navigate financial markets under current conditions is by selling into equity rallies, especially when the S&P 500 reaches a range between 4,200 and 4,300. The index closed near 3,977 Monday.

“The markets are so volatile, so much movement that it’s almost impossible to sell on weakness. The markets just go from a mineshaft type of decline and that’s true in the credit markets and I think it’s true in other risk assets as well,” Gundlach said.