Portfolio manager Jeffrey Gundlach has tipped the US equity market to enjoy a strong first half to 2018 before falling and ultimately ending the year in the red.
In a Tuesday webcast the chief executive and chief investment officer of DoubleLine Capital said that all economic signals were currently 'flashing no recession' but that the S&P 500 would finish 2018 with a negative return.
'My prediction for 2018 is the S&P 500 will have a negative rate of return,' he said.
‘What’s obvious is obviously priced in,’ said Gundlach. ‘When it [the S&P 500] falls, it will wipe out the entire gain of the first part of the year.’
Gundlach referenced a recent paper by veteran value investor Jeremy Grantham, who predicted a stock melt-up within the next two year as accelerating stock prices build to an eventual bubble.
‘There was a research piece out by Jeremy Grantham whom I respect a lot, he’s overlaying the 1999 experience with where we are today,' said Gundlach.
The DoubleLine manager repeated his view that commodities would be one of the best investments of 2018.
He suggested buying a broad basket of commodities instead of a particular kind such as agriculture-related commodities, which could be easily affected by weather and natural disasters.
He also reiterated his confidence for the 10-year US Treasury to reach 6% by the next presidential election or a year after that.
The current yield on the 10-year Treasury is 2.53% and has not seen much momentum but Gundlach believes that it will only accelerate higher once it hits the critical 2.63%. The 10-year peaked at 2.6258% in March last year.
He added that now was a horrible time to buy corporate bonds because ‘all the juice has been squeezed out of the orange.’
The bond manager also called into question the dubious long-term value of bitcoin and claimed it did not fit into his conservative DNA.
He said that shorting bitcoin at the right moment could make investors money and listed the example of shorting the cryptocurrency on December 13 2017, when it was around $17,000. Bitcoin's price has fallen 3.8% to $14,402.06 per coin at the end of Tuesday, according to bitcoin exchange CoinDesk.
Citywire + rated Gundlach’s $52.7 billion DoubleLine Total Return Bond fund, which he co-manages with Citywire AA-rated Philip Barach, has returned 8.2% over the past three years until the end of November last year and ranks 4 out 30 US Mortgage funds tracked by Citywire.
Los Angeles, California-based DoubleLine managed $119 billion in assets at the end of the fourth quarter of 2017, up from $102 billion at the end of the same quarter in 2016.