Billionaire investor Jeffrey Gundlach flags risks to stocks, says house prices may drop, and sees a recession striking before the summer

• Jeffrey Gundlach touted bonds over stocks and said US house prices may dip when mortgage rates fall.

• The billionaire investor flagged the risk of a recession striking in the second quarter of 2024.

• The DoubleLine Capital CEO rang the alarm on the national debt, warning interest costs could spike.

Banking jitters are more likely to boost bonds than stocks, house prices could drop, and a recession will probably hit by summer, Jeffrey Gundlach said.

The regional-banking disaster this spring has spurred people to pull their cash out of bank deposits and park it in money-market fund en masse. Fresh money flowing into financial markets can be good news for stocks, but Gundlach dismissed the idea they would benefit significantly.

“I think it really misses the point to think people are going to go from a money-market fund, a six-month T-bill-and-chill type of a situation, and go into the Ark type of fund or the Magnificent Seven type of fund,” he said. “That’s such a monumental change in risk appetite that I don’t think it’s logical.”

Gundlach, a billionaire investor and DoubleLine Capital’s CEO, made the comments during a recent company webcast. He argued an inflow of funds into Treasuries and other safe bonds was more likely.

The veteran fund manager also discussed the US housing market, which has essentially frozen this year as buyers balk at taking on mortgage rates in excess of 7%, and prospective sellers hold off on listing their homes because they don’t want to give up cheaper rates they’ve locked in. Mortgages have jumped in cost due to the Federal Reserve hiking interest rates from nearly zero to over 5% since March last year in response to historic inflation.

“I believe that if mortgage rates fall further by, say, a percentage point, I think we’ll actually start to see home prices weaken because we’ll unlock supply,” Gundlach said. “Ironically we might have housing prices deteriorate along with falling mortgage interest rates — the opposite of what most of our 40-year experiences have been.”

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Gundlach also rang the alarm on the national debt, warning interest payments could swell to roughly 20% of federal tax revenue within the next five years. He noted the US government has historically run budget deficits during recessions as it has scrambled to shore up the economy, and argued rates are likely to remain higher for longer, paving the way for US debt payments to balloon.

The investor reiterated his view that a prolonged economic slump is likely. He pointed to the yield curve staying inverted for a while and now threatening to reinvert, which has historically happened at “the front edge of the recession,” he said.

Gundlach also flagged the Philadelphia Fed’s coincident economic indicators, which have hit levels that typically indicate trouble ahead.

“This is completely consistent with the potential for recession say in the second quarter or so of next year,” he said.

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