NEW YORK (Reuters) – Jeffrey Gundlach, chief executive of DoubleLine Capital, on Monday said the S&P 500 Index is headed to new lows and that U.S. equities are in a long-term bear market.
FILE PHOTO: Jeffrey Gundlach, CEO of DoubleLine Capital, speaks during the Sohn Investment Conference in New York City, U.S., May 8, 2017. REUTERS/Brendan McDermid/File Photo
Gundlach, speaking on CNBC TV, said passive investing has reached “mania status” and will exacerbate market problems.
“I think it is a bear market. I think we’ve had the first leg down and the second leg down is usually more painful than the first leg down,” said Gundlach, who oversees more than $123 billion.
“I think this lasts a long time. It has a lot to do with the fact that, I believe, that we’re in a situation that is… highly unusual – that we’re increasing the budget deficit so spectacularly so late in the cycle while the Fed is hiking interest rates.”
The intraday low for the year in the S&P was on Feb. 9, when it bottomed at 2532.69. The low close for the year was on April 2 at 2581.88. On Monday, the S&P was trading around 2559.
Investors are also bracing for the Federal Reserve’s last rate decision of the year on Wednesday, when they are expected to raise interest rates for a fourth time for 2018.
Gundlach said the Fed should not raise interest rates this week but will. “The bond market is basically saying, ‘You know, Fed, there’s no way you should be raising interest rates,’” he said.
The Fed’s quantitative tightening campaign has made markets nervous because of the ultra low levels that have remained in place for several years, Gundlach said.
“The problem is that the Fed shouldn’t have kept them (rates) so low for so long. The problem is, we shouldn’t have had negative interest rates like we still have in Europe. We shouldn’t have had done quantitative easing, which is a circular financing scheme,” he said.
Gundlach took a shot at passive investment strategies such as index funds, declaring the investing strategy a “mania” that is causing widespread problems in global stock markets.
“I’m not at all a fan of passive investing. In fact, I think passive investing … has reached mania status as we went into the peak of the global stock market,” Gundlach said. “I think, in fact, that passive investing and robo advisers … are going to exacerbate problems in the market because it’s hurting behavior,” he said.
Reporting by Trevor Hunnicutt and Jennifer Ablan; Editing by Dan Grebler and Nick Zieminski