Jeffrey Gundlach sees a benign green scene heading into the holidays.
The seasonal Santa rally could be jolly, assuming there will be no Black Swan event, given a likely Fed rate cut in December and the inauguration of a market-friendly president in January 2025. Next year could be a memorable bull market, bearing in mind that in the first year of a president, markets are nearly always bullish.
“Next year could be a memorable bull market, bearing in mind that in the first year of a president, markets are nearly always bullish”
RAY DALIO
A tranquil Fed is why Jeffrey Gundlach sees benign green markets
“I think Powell feels he is in a good place now because since the July 31st meeting, we have the 2-year treasury rate up by almost 60 basis points, and the Fed fund rate is now down by 75 basis points,” said Jeffrey Gundlach.
“So he has gotten much more succinct with the bond market by moving Fed funds relative 2 years of 150 basis points of convergence in just two meetings,” he said.
Jeffrey Gundlach sees one more rate cut in December. “That would true up the Fed fund rates exactly where the Fed fund rate is right now,” he said.
Jeffrey Gundlach’s reason for the rally in almost all assets is an incredibly consequential election result, very different from what many people were forecasting.
“The labour market is normalising, job opening rates are where they were pre-pandemic.
I think the Fed feels they are plotting towards their goals,” said Jeffrey Gundlach.
But he also noted that households are not showing signs of strength.
“The labour market is normalising, job opening rates are where they were pre-pandemic”
WEALTH TRAINING COMPANY
Gundlach sees a benign green scene but fretts about the imbalance in the treasury bond market
“The supply of treasury bonds is astonishing. We have a 2 trillion dollar deficit, about 6% of GDP over the last 12 months, and we still have a growing economy. The interest payment on the debt three years ago was 300 billion dollars per year, and it is now 1.3 trillion dollars per year, and we have a great volume of bonds rolling off with very low interest rates from five and even three years ago refinanced at substantially higher rate levels, and this is going to be a supply problem for the bond market,” he said.
“For this reason, we are not positive on long-term treasury bonds.
The supply of bonds is very troubling,” he added.
“We recommend investors stay at the intermediary part of the treasury bond market and not out in the 20 to 30-year bond sector” – Jeffrey Gundlach
Jeffrey Gundlach sees a benign green scene except for bonds
“We recommend investors stay at the intermediary part of the treasury bond market and not out in the 20 to 30-year bond sector.
We do not want exposure to this fiscal finance problem, which could lead to rising interest rates even though we have a slowing economy,” he said.
The twos and tens treasury yield curve is flat, and he anticipates another Fed rate cut in December.
Jeffrey Gundlach thinks Powell is more in line with the bond market, seeing progress toward the mandate of 2% inflation.
He thinks we will see CPI below 2% in four months, with inflation coming down in 2025.
