Jeff Gundlach says inventory market valuations are extraordinarily excessive and solely supported by the Fed

Jeffrey Gundlach

Adam Jeffery | CNBC

Jeffrey Gundlach, founder of DoubleLine Capital, on Monday expressed concerns about the stock market’s high valuation compared to historical levels and believes that rising inflation could stimulate investors this year.

“We are here with extraordinarily high ratings and it is supported by massive impulses,” Gundlach told CNBC’s Scott Wapner in the “mid-term report”.

“If you go back four decades of stock market data, there are a lot of valuation metrics that are in the top 1 percentile of overvaluation. Of course, what keeps them going is the Fed with rates at zero and promises to stay at zero,” added Gundlach . This “enables ratings to be record-breaking.”

The Dow Jones Industrial Average, S&P 500 and Nasdaq Composite all rebounded at record highs last week, raising their valuation levels further up or above historical standards.

For example, the price / earnings ratio of the S&P 500 is currently just under 23. This is almost the highest level it was in 2000.

Change of leadership

Gundlach also noted that some trends that have been around for about a decade are now reversing. He said emerging markets are starting to outperform the US, value is leading growth, and companies with weaker balance sheets outperform those with generally strong balance sheets.

“Things are definitely changing. The leadership of the United States, which has been a top performing market for a decade, appears to be basically turning around,” he said. “A lot of things are changing. I suspect this is not a short-term phenomenon.”

Another change that could put pressure on stocks is the possibility of rising inflation as the Fed pledges to keep rates low and keep its stimulus packages in place.

Gundlach referred to a comment by Chicago Federal Reserve President Charles Evans on Jan. 4. Then Evans said, “The more we raise inflation above 2%, the better the markets will understand that we are interested in winning them.” . “

Gundlach, who expects the consumer price index – a widely used inflation metric – to hit 3% in his May / June report, said inflation is “a real trailblazer should it happen”.

The benchmark yield on 10-year bonds was 1.136% on Monday, close to its highest level since March 2020.

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