Bond investor Jeffrey Gundlach on Tuesday said there’s more room to the upside for U.S. stocks, but that investors should “peel off” some of their exposure to equities and look to diversify into other markets, including India and Japan.
In a webcast, the chief executive of DoubleLine Capital also said he expects the Federal Reserve to raise rates at least twice and possibly three times this year, including a move in June.
He also reiterated a point he made last June, warning that a rise in the yield on the 10-year Treasury note TMUBMUSD10Y, -1.45% which ended Tuesday near 2.38%, to more than 3% would spell trouble for U.S. equities and definitively mark the end of a more-than-three-decade bull market in bonds.
In an apparent dig at rival bond investor Bill Gross, Gundlach said he had heard that some “second-tier” bond managers were talking about 2.6% as a key level for Treasurys. Earlier Wednesday, Gross, in his monthly note for Janus Capital, warned that a rise in the 10-year yield above 2.6% would signal the end of the bond market’s multidecade bull run.
Gundlach, who had highlighted the 3% in his December webcast, said that a move above that level would be important because it would mark the end of a line of declining peaks in yields.
On equities, Gundlach reiterated points he made in an earlier interview with Fox Business, in which he noted that a number of other markets haven’t done nearly as well as the U.S. and look relatively cheap, with recent weakness offering an opportunity to diversify.
In the webcast, Gundlach highlighted India and Japan as being relatively attractive. Gundlach said he’s skeptical of calls for the dollar to rally in 2017, and as a result is relatively sanguine about prospects for some emerging markets as well as other developed markets. However, Gundlach said he remained nervous about Europe due to political risk, including elections due later this year in France and the Netherlands.
In the U.S., Gundlach said political uncertainty is also high as President-elect Donald Trump’s policies won’t be “universal in terms of their effect” on all sectors of the U.S. economy. Gundlach said Trump’s proposals are likely to provide a near-term bump to growth but said concerns about debt levels and the possible shrinking of trade could spell trouble.