“ “The stock market, frankly, is exhibiting signs of a mania, where you have a very concentrated part of the market’s that driving the entire train.” ”
That’s Jeffrey Gundlach, CEO of DoubleLine, in a CNBC interview Wednesday afternoon, following a decision by the Federal Reserve to hold interest rates steady in June, but penciling in more for later this year.
“If you want to talk about the stock market, I think you’ve got to divide it into sectors,” Gundlach said. “You’ve got the ‘S&P seven,’ which is the mania craze regarding if you say anything about AI, your stock goes up 20%.”
He was referring to what others have dubbed the “Magnificent Seven,” or a group of mega-cap technology stocks comprised of Apple Inc.,
AAPL,
Microsoft Corp.,
MSFT,
Amazon.com Inc.
AMZN,
Nvidia Corp.,
NVDA,
Alphabet Inc.,
GOOG,
Tesla Inc.,
TSLA,
and Meta Platforms Inc.,
META,
which have soared in 2023, in part on optimism around advances in artificial-intelligence technologies.
“Then you’ve got the S&P 500[‘s other 493 stocks], which have gotten a little bit of a tailwind lately, but as of a few weeks ago, were basically unchanged here today,” he said. “The stock market, frankly, is exhibiting signs of a mania, where you have a very concentrated part of the market’s that driving the entire train.”
The S&P 500
SPX,
rose 0.1% Wednesday to 4,372, marking a gain of about 13.9% on the year. The Nasdaq Composite Index
COMP,
gained was 30.2% higher on the year, while the Dow
DJIA,
was up 2.5% so far in 2023, according to FactSet.
Gundlach is best known for his fixed-income bets, including outsized gains on distressed debt scooped up at bargains in the wake of the 2007-2008 global financial crisis. He again sees potential for upside in bonds trading in distressed territory, or at prices below 70 cents on the dollar.
That’s part of his call on Wednesday for a roughly 20% allocation to stocks, 60% to bonds and perhaps 20% to real assets, saying he continues to be bullish on bonds, where investors can earn 5% yields on high-grade investments with little credit risk.
Gundlach also warned stock-market valuations look “pretty scary,” given the inverted Treasury yield curve that’s been flashing recession warnings for a year, but also the Fed indicating on Wednesday it isn’t likely done raising interest rates.
Read: Fed skips June interest-rate hike, but points to two more increases this year
“If there’s a massive default problem, stocks are going down more than 50%, because they are junior in the capital structure,” he said, arguing that with “storm clouds” gathering over the economy, Fed Chair Powell shouldn’t hike rates beyond the current 5%-5.25% range.
“He’s done a good job if he doesn’t hike rates,” he said.
