Jeffrey Gundlach, the founder and CEO of DoubleLine Capital, is bearish on the U.S.
In a virtual webinar during Schwab’s virtual Impact 2020 conference, he laid out multiple reasons:
- The outlook for GDP growth next year is lower than the rest of the world: 3.7% annual growth versus 5.2% outside the U.S., following a 4% drop this year. U.S. trade and fiscal deficits are growing sharply, and the dollar, as a result, is falling.
- U.S. stocks are overvalued — the cyclically adjusted price-to-earnings ratio of the S&P 500 is 30.6% — and the “Super 6” tech stocks that have driven the currently rally — Facebook, Amazon, Apple, Alphabet, Netflix and Microsoft — have recently begun to underperform.
- Although the U.S. stock market has sharply outperformed other global markets during the last decade, it will fall victim as other global stock markets have after their peaks: Japanese stocks in the 1980s, European stocks in the 1990s and emerging market stocks in the 2000s. None of those made it back to their previous highs, Gundlach said.
“During this recession the U.S. will be the worst performing stock market over the next five years,” Gundlach said. “Therefore, diversification into international investments has never been more interesting.”
He blames Federal Reserve policies for the overvaluation of U.S. equities, which he likened to “passing out candy to the children,” driving a retail frenzy in stocks.
Gundlach said it may be time for investors to abandon tech and health care and go back to energy and financials — the latter helped as the yield curve steepens.
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Also supporting a move away from the U.S. stocks and toward emerging markets is the falling dollar, which had rallied during the last decade. “In the years ahead, the U.S. dollar is going down” due to trade and budget deficits, though primarily the latter, Gundlach said.
A weaker dollar would also support commodity prices, including metals, which, in turn, will support emerging market stocks. Gundlach suggested Asian emerging market stocks for investors who want to play it safe and Latin American emerging markets for the risk takers.