DoubleLine Capital CEO & CIO Jeffrey Gundlach, who predicted a Trump win in January, says stocks are a messy bet while some Treasuries are looking good right now.
Before analyzing different asset classes on a call with investors and market-watchers on Tuesday, the Bond King laid out the reasons for Donald Trump’s election, highlighting economic data.
“Trump won because people felt abandoned and left behind,” he said.
Median worker wages for men, for instance, have dropped by 4.6% since 1973. At the same time, the top 5% of wage earners have seen a 51.4% real increase in their purchasing power.
Meanwhile, the share of wealth for the bottom 90% of households has fallen from 36% to 23%, as the share of the top 0.1% has soared from 7% to 22% over the past 20 years.
“The ownership of wealth has shifted,” Gundlach said. “But those trends are about to reverse.”
Also, Obamacare monthly premium hikes for 2017, which were made public Nov. 1, were “massive,” he points out. For a 27-year-old, they are going from $242 to $302.
Investors should expect “a bumpy ride” at the start of Trump’s term in office, the DoubleLine executive says, adding that the president-elect does not have a “magic wand” to improve the economy.
“The markets remain completely confused as to what will be the trend direction from the election,” he explained.
A group of stocks to stay away from includes Facebook, Amazon, Netflix and Google. “Avoid the ‘FANGs’ in a big way,” said Gundlach, noting that the market had priced a Clinton win into their valuations before Trump’s win.
Instead, he favors financials, materials and industrials. Banks, for instance, stand to benefit from “a steeper yield curve and less regulation.”
“Maybe liquor sales will go up,” Gundlach said during the webcast. “The Trump win is not positive for consumer spending.”
The Fed is likely to move to hike interest rates in December, Gundlach has been warning. The 10-year bond is currently yielding more than 2% vs. 1.35% this summer, he notes.
On Friday, Gundlach told CNBC, “The bond market is giving them carte blanche to raise interest rates. The Fed absolutely should raise rates in December if they ever plan on raising them again.”
A rate hike will likely hurt the housing market by driving up mortgage payments. At the same time, median rents have been “skyrocketing.”
The probability of a recession is rising, the Bond King says, based on the unemployment rate relative to its historical moving average.
Inflation measures, like hourly earnings, core CPI and core PCE, are all moving higher, along with the Pricestats inflation gauge. He says inflation could top 2.5% by April.
Thus, TIPS have been looking good since September.
“Corporate bonds look very overvalued and have very high interest rate risk,” he said.
Crude oil might get to $60 a barrel and shouldn’t drop below $40 over the next year or so, the DoubleLine executive says. From its low in January 2016 (at $26), it is poised to have a 100% price year-over-year increase.
Gundlach says he is “somewhat neutral” on gold in the short term. He is more bullish on the dollar, saying that is should “move to higher levels.”
He sees the U.S. currency as “a leading indicator” of Treasury rates, and suggests that bond buyers will benefit when the 10-year Treasury reaches 2.30% or 2.35%.
“The 10-year yield is higher than its average the past five years,” he said. “This is not my definition of a bull market.”
Gundlach notes that the 10-year yield could be 6% in five years, which is not necessarily negative for bond funds – as cash flows from bonds go up when prices go down.
“It’s way late to be selling bonds and buying stocks. Probably should be doing the opposite,” he explained.
— Related on ThinkAdvisor: