The era of low volatility is over and it’s stock market investors who will have to pay, “bond king” Jeffrey Gundlach said Wednesday.
Rising bond yields and the plunge in cryptocurrencies like bitcoin are providing signs that have led Gundlach to expect stocks to end the year in negative territory.
The DoubleLine Capital founder conceded that his bet against the market suffered in December and January, “but it was so obvious to me that bitcoin is the dotcom of our world today, and this mania is so similar to where we were in 1999.”
In addition to betting against stock generally, Gundlach has been long equities in his flgaship fund as he expects the return of volatility to change the investing landscape.
“We’re in a low volatility regime that is completely, obviously different from what we experienced in 2017. It’s payback time,” Gundlach told CNBC’s “Halftime Report” in an interview. “2017 was the easiest investment year of all time. The risk-adjusted returns for the stock market were probably the best in history.”
Rising government bond yields have put pressure on stock prices, he said. Specifically, a 2.63 percent yield on the benchmark 10-year Treasury note marks a line in the sand for stocks, which are currently in correction territory.
Gundlach is the founder of DoubleLine Capital. He said he is net-short the stock market, meaning he is betting on equity prices to fall.
“The stock market can’t take higher bond yields,” he said.
Gundlach spoke on a day when stocks tumbled at the open but regained most of their losses through the course of the day. The S&P 500 and Nasdaq both turned positive in afternoon trading, though the Dow industrials were still negative.
Volatility indeed has surged in 2018 after lingering around historic lows in the previous year.
One sign Gundlach pointed to is bitcoin — the cryptocurrency had peaked in 2017 along with stock prices, while its slumps this year have preceded downturns in stocks.
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