“ ‘I’m certainly in the camp that we are not out of the woods. I think a retest of the low is very plausible’ ”
That’s from Jeffrey Gundlach, chief executive of bond fund giant DoubleLine Capital, talking Monday about where he sees stocks headed.
Gundlach added he had put a short position on the S&P 500 SPX, +1.47% at 2,863, but did not exclude the potential for the broad-market index to hit the 3,000 mark.
“At this level, I think the upside and downside is very poor. I don’t think it could make it to 3,000, but it could. I think downside easily to the lows or beyond,” Gundlach said in an interview with CNBC. “I’m not nearly where I was in February when I was very, very short.”
Since the Fed and the U.S. government stepped into support the economy last month, announcing several emergency lending programs and fiscal stimulus measures, equities have bounced back from the lows hit in mid-March.
The S&P 500 was up nearly 28% from its low of 18591.93 hit on March 23, as of last Friday. The equity benchmark extended its gains at the start of this week, trading up 1.7% on Monday.
Gundlach’s remarks come as a large cohort of investors question the velocity and vigor of the stock-market rebound given the lingering uncertainties surrounding the U.S. economy’s trajectory.
Though lockdowns are being eased across Western Europe and some U.S. states, many says it’s not clear how fast businesses and households will recover from an economic downturn that is widely expected to surpass the depths of the 2008 financial crisis.
In the same interview, Gundlach also said he thought the biggest exchange-traded fund targeting corporate bonds, the iShares iBoxx $ Investment Grade Corporate Bond ETF LQD, -0.79%, was “the most overvalued asset in the bond market” due to the Fed’s intervention. Last month, the Fed announced it would buy the debt of highly rated corporations to support the flow of credit.
The bond ETF is up 0.8% year-to-date despite the expectation for more corporate debt issuers to default on their obligations.