Gundlach: Get Ready for Higher Yields, Summer Selloff

Things could heat up in the stock market this summer when rates may go higher, according to DoubleLine Capital CEO Jeffrey Gundlach.

“I think it’s more likely that equities drop when yields are rising,” Gundlach said, during a webinar on Tuesday.

The fixed-income portfolio manager see yields on the 10-year Treasury going up this summer, and a significant move would go hand in hand with a correction in equities.

On Wednesday, the Federal Reserve said rates would not go up due to concerns about economic growth. The yield of the 10-year note moved up to 2.30%.

With his anticipation of higher yields this year in general, “I would prefer not to take a lot of interest rate risk now,” Gundlach said. In other words, it’s not the time to be “a big fan of long-duration” securities, which he explained he was not.

“I think it’s wrong to characterize the environment [today] as a ‘flight to safety,’” he explained, pointing out that volatility has been low and the rally in Treasury bonds weak.

Gundlach described the movement in stocks today as “sideways.”

He also reviewed some of the economic data that is showing a softening in demand, such as weaker auto sales and retail consumption.

With GDP growth at 0.7% in the first three months of 2017, “We had another lousy first quarter,” the DoubleLine executive said.