Jeffrey Gundlach has been warning something’s got to give. Based on the past two days, looks like we have our answer.
Stocks fell around the world a second day and high-yield bonds headed for a fourth straight loss, resuming a historic correlation that the fund manager on Wednesday had warned was alarmingly out of whack.
“JNK ETF down six days in a row, closing near its seven month low,” the DoubleLine Capital LP co-founder wrote on Twitter Wednesday. “SPX up five of last six days, closing at an all time high. Which is right?”
With high-yield bonds and the tech-heavy index of Nasdaq 100 stocks moving in tandem for most of their history, a recent breakdown in correlation suggests the selloff gripping junk is set to spread farther. True to Gundlach’s warning, Facebook Inc., Amazon.com Inc., Apple Inc., Netflix Inc. and Google owner Alphabet Inc. — collectively known as the FAANGs — are tumbling too.
As prospects for meaningful U.S. fiscal reform faded Thursday, the Nasdaq 100 fell 0.5 percent while the Bloomberg Barclays US Corporate High Yield Bond Index fell 0.4 percent to its lowest point in nearly two months. Previously, the mega-cap index had gained 1.5 percent since the start of the month while the high yield index fell 0.4 percent.