NEW YORK (Reuters) – Jeffrey Gundlach, chief executive of DoubleLine Capital, said Tuesday on an investor webcast that the Standard & Poor’s 500 Index is likely to go below its February 2018 lows.
FILE PHOTO: Jeffrey Gundlach, CEO of DoubleLine Capital, speaks during the Sohn Investment Conference in New York City, U.S., May 8, 2017. REUTERS/Brendan McDermid/File Photo
Gundlach said global economic growth is slowing and weighing on corporate profitability, which will pressure U.S. stocks. But another dynamic that has been adding to the sell-off in equities is the unwind of the Federal Reserve’s massive balance sheet, he said.
Gundlach, who oversees more than $123 billion in assets and known on Wall Street as the Bond King, said there has been a high correlation between central bank balance sheets and the global equity markets.
With the Federal Reserve shrinking its balance sheet, which quintupled in size after the financial crisis, the equity markets have mirrored that and dropped, Gundlach noted.
“The breadth of the decline in the global equity market is pretty powerful,” he said.
Gundlach, citing an Atlanta Fed research study, calculates $600 billion of Federal Reserve asset unwind is equivalent to three interest rates hikes.
“Maybe that is what really has gotten things in the wrong way,” Gundlach said about the S&P sell-off. “The stock market has been following the Fed’s shrinkage of the balance sheet of quantitative tightening to the downside.”
The intraday low for the year in the S&P .SPX was on Feb. 9, when it bottomed at 2532.69. The low close for the year was on