- Stocks are as overvalued now as they were in early 2022, Jeffrey Gundlach told CNBC.
- The new highs resulted from rate cut expectations, which have been excessive, he said.
Though recent stock market highs have elicited excitement from Wall Street, equity values are similar to what they were ahead of the previous bear market, DoubleLine's Jeffrey Gundlach warned.
"The stock market on traditional measures — P/E, price to book, all that stuff — is as overvalued as it was two years ago, but bond yields are about 500 basis points higher at the short end, and about 400 basis points higher at other parts of the curve," the "Bond King" said in an interview with CNBC.
After closing at a record high in January of 2022, the S&P 500 tumbled around 25% to an October bottom that year, as post-COVID shocks and the Federal Reserve's aggressive hiking cycle took a toll on investors.
Stocks rebounded last year, with help from an investor frenzy around artificial intelligence and the absence of a recession. By late 2023, traders also became convinced the central bank would soon start cutting rates, a bet that propelled the S&P to a fresh all-time high last week.
"To have six rate cuts between May and the end of the year always seemed like a lot to me, absent some very substantial improvement in inflationary data, which did not happen," Gundlach told the outlet at the ETF Exchange Conference.
January's consumer price index came in hotter than expected, dimming rate-cut prospects — and markets will likely find little comfort in future reports, as the uptick in the three-month annualized core CPI may be a sticky trend, Gundlach warned. Still, incoming personal consumer expenditures are the more important measure to pay attention to now.
With stocks apparently overvalued, Gundlach suggested a turn to credit, describing a 45-25 portfolio split between bonds and cash, making funds available for when stocks eventually get cheaper. He recommended a 30% allocation in stocks, divided between the US, Japan, and India.
Gundlach's comments mirrored the previous warnings he's put out, cautioning in January that a recession is still on the table.