Jeffrey Gundlach speaks at the 2019 Sohn Conference in New York on May 6, 2019.
Adam Jeffery | CNBC
DoubleLine Capital CEO Jeffrey Gundlach believes the Federal Reserve has poured cold water on hopes of a “Goldilocks” economic scenario that would benefit risk assets, and the bond king stuck by his forecast of a likely recession this year .
“When I hear the word ‘Goldilocks,’ I get nervous,” Gundlach said Wednesday on CNBC’s “Closing Bell.” “When you hear people say ‘Goldilocks’ and everyone in the room [is] When someone nods their head north-south and says, “Yes, it’s Goldilocks,” that means the price of everything is almost perfect. … Today Jay Powell took away Goldilocks,” he said, referring to Federal Reserve Chairman Jerome Powell.
Many investors had been betting that the Fed’s series of aggressive rate hikes last year wouldn’t hurt the economy too much, leading to an economic recovery that was neither too hot nor too cold.
But Gundlach believes the market’s belief was blindly optimistic and that Powell’s message on Wednesday destroyed the “Goldilocks” theory.
The Fed left interest rates unchanged at 5.25% to 5.50% on Wednesday, while making clear that it is not yet ready to ease the brakes. Stocks fell to session lows as Powell said in a news conference that the central bank was unlikely to have the confidence in inflation to cut interest rates at its next policy meeting in March.
“At the moment we are assuming that the inflation rate will stall,” said Gundlach. “That will likely mean the market won’t get the Goldilocks picture it was euphoric about a few weeks ago.”
The stock market started 2024 with a bang S&P 500 Rise to record highs in a row. The large-cap stock benchmark lost 1.6% on Wednesday alone, halving its 2024 gain to 1.6%.
Gundlach said he still expects a recession to occur in 2024. He suggested investors may want to raise cash to fund buying opportunities if an economic downturn occurs.
“I think you want cash to enter emerging market trades once the economy slows and potentially enters a recession,” Gundlach said. “There are certainly many pockets of recession around the world at the moment. If we go into recession in the United States, I think we will see a buying opportunity and you want cash for that.”
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2024-01-31 21:57:54
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