'Bond King' Gundellak "US Stock Market Overvalued... Stock Up on Cash"

Similar to the Start of the 2022 Bear Market
Low Possibility of US Economic Soft Landing and Goldilocks
"Must Have Money to Buy When Goods Are Cheap"

Jeffrey Gundlach, CEO of DoubleLine Capital and known as Wall Street's 'Bond King,' stated that the current U.S. stock market is overvalued and at a level similar to the start of the bear market in 2022. He also warned that investors should hold a significant portion of their portfolios in cash to prepare for the onset of a bear market.

According to CNBC on the 13th (local time), Gundlach said, "By traditional standards, the stock market is overvalued in every aspect, including price-to-earnings ratio (PER) and price-to-book ratio (PBR), just as it was two years ago." He added, "Bond yields have risen by about 500 basis points (1bp = 0.01 percentage points) in the short term, and by 400 basis points in other sectors," explaining, "Therefore, these two indicators are currently completely different valuation metrics." Bond yields move inversely to bond prices, indicating that stocks are overvalued compared to bonds.

Jeffrey Gundlach, CEO of DoubleLine Capital

The previous stock market bull run was two years ago. The S&P 500 reached an all-time high on January 3, 2022. Afterward, the S&P 500 index fell about 25%, bottoming out by October of the same year before rebounding in 2023. The S&P 500 surpassed the 5000 mark for the first time ever on the 9th but fell back to the 4000 range within two trading days.

Gundlach reiterated his warning that the current U.S. economy is unlikely to achieve a soft landing or become a 'Goldilocks' economy (a state of high growth without inflation). He also said that during the next recession, interest rates are more likely to rise rather than fall, unlike the previous recession.

On the 31st of last month, he also said that the possibility of a U.S. recession remains high and that hearing the term Goldilocks makes him nervous. He pointed out that the Federal Reserve's decision to hold interest rates steady has dampened expectations for a Goldilocks economy.

Unlike the traditional portfolio allocation of 60% stocks and 40% bonds, Gundlach said he prefers holding 45% bonds and 25% cash. He explained, "Because you can buy things when they are cheap." This means holding cash in preparation for a bear market.

He cited Japan and India as optimistic foreign stock markets. He also said he would allocate about 10% of assets to physical assets such as gold.