Jeffrey Gundlach is shorting stocks despite the S&P 500 stock index bouncing 18% from a 34% sell-off low from its all-time high on February 19. 

The Stoxx Europe 600 has also risen almost 20% from its March lows on hopes of a post-pandemic lockdown V-shaped recovery and of course more European Central Bank quantitative easing (QE). So a snapshot of the Stoxx Europe 600 index, at the time of writing this piece, shows that stocks have just about entered a technical bull market. 

Jeffrey Gundlach is shorting stocks despite the S&P 500 stock index bouncing 18% from a 34% sell-off low from its all-time high on February 19

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Could this be another one of those infamous bear market traps, bearing in mind the dismal fundamentals as Jeffrey Gundlach is shorting stocks?

Jeffrey Gundlach, known as the bond king of the fixed income investing world and former head of $9.3 billion TCW thinks that a retest of the lows in March is ‘very plausible’. 

Sizeable short term rallies are typical in a secular bear stock market where the index makes lower highs and lower lows, which could be why Jeffrey Gundlach is shorting stocks. 

Jeffrey Gundlach, self-made billionaire, and CEO of DoubleLine, believes that investors are underestimating the social disruptions from the coronavirus.

“I think a retest of the low is very plausible” said Jeffrey Gundlach.

DoubleLine had more than $148 billion in assets under management as of the end of 2019, according to its website.

“People don’t understand the magnitude of … the social unease at least that’s going to happen when … 26 million-plus people have lost their job” he added. 

People don’t understand the magnitude of … the social unease at least that’s going to happen when … 26 million-plus people have lost their job

JEFFREY GUNDLACH

Jeffrey Gundlach is shorting stocks as he weighs the impact of joblessness rates in both Europe and the US as we hit the greatest depression

Perhaps the bond king of fixed incomes is looking beyond yet another central bank QE induced stock rally as he sees a tsunami of household loan defaults, as well as non performing subprime auto loans that start rolling in and breaking on the financial sector.

Credit Acceptance Corp., the lender to car buyers with subprime credit scores, warned that it’s seeing a sharp drop-off in payments as people shift their financial priorities to get through the coronavirus pandemic. Any trader/investor will be quick to deduce that his shorts may well include financial institutions. As unemployment soars, borrowers are putting off payments or “reallocating resources” Credit Acceptance said in a regulatory filing Monday.

I’m certainly in the camp that we are not out of the woods. I think a retest of the low is very plausible” – Jeffrey Gundlach

Moreover, the greatest depression rates of unemployment also signal a coming default crisis with an online loans crisis and consumer credit card defaults.

The subprime loan crisis is back but this time it is not with subprime mortgages but with risky corporate debt, junk bonds which could be why Jeffrey Gundlach is shorting stocks

Corporate leveraged loan market was beginning to look like a house of cards back in 2019 with the leveraged loan market – a $1.3tn (£1tn) pile of risky corporate loans growing too dangerously big, particularly in an economic downturn. 

Jeffrey Gundlach’s credit market warning was made back in May 2019 when the fixed income investor warned that bonds are in the “twilight zone.” 

The fragile state of corporate bonds and the ballooning US public deficit was the crux of Jeffrey Gundlach’s credit market warning.

Jeffrey Gundlach believes that the modern market’s landscape is resembling ‘the Twilight Zone’ thanks to President Trump’s insistence on rate cuts.

The so-called bond king, Jeffrey Gundlach, is shorting stocks and he believes that the stock market could sell off again to retest the low in March

Jeffrey Gundlach believes investors are too optimistic about the economic recovery from the coronavirus pandemic.

“I’m certainly in the camp that we are not out of the woods. I think a retest of the low is very plausible” said Jeffrey Gundlach on CNBC’s “Halftime Report.” “I think we’d take out the low,” added Jeffrey Gundlach.

We’ve lost every single job that we created since the bottom in 2009” – Jeffrey Gundlach

Jeffrey Gundlach is shorting stocks because he believes that investors have not got to grips with the scale of the problem, particularly the job losses

“We’ve lost every single job that we created since the bottom in 2009” said Jeffrey Gundlach.

It is no surprise that Jeffrey Gundlach is shorting stocks, but at what price?

“I did just put a short on the S&P at 2,863. At this level, I think the upside and downside are 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 … I’m not nearly where I was in February when I was very, very short” said Jeffrey Gundlach.

But over the past few months, the central banks have embarked on an unprecedented amount of liquidity. The Fed fund rates are at zero and the Fed’s balance sheet has ballooned to a record 6.13 trillion dollars as the central bank used its nearly unlimited buying power to soak up assets and keep markets from tanking like the fundamentals.

Since the pandemic, the central bank’s balance sheet has jumped by about $1.7 trillion and bond holdings surpassed $5 trillion for the first time. 

The Fed continued to snap up Treasury securities, mortgage bonds, and other assets, according to the latest data released.

A graphic view showing the Fed’s response to the COVID-19 crisis which has led to a record pace of asset purchases.

Other major central banks, the ECB and the BoJ and the BoE all have their versions of QE to infinity. 

Jeffrey Gundlach is shorting stocks despite the worlds’ major central banks embarking on massive central bank easing

Jeffrey Gundlach also said that the popular corporate bond ETF LQD looks like the most overvalued fixed income asset because of the Fed’s massive quantitative easing program.