U.S. Markets

DoubleLine's Gundlach predicts S&P will post negative return in 2018

Jeffrey Gundlach, CEO of DoubleLine Capital, speaks during the Sohn Investment Conference in New York City, U.S., May 8, 2017. REUTERS/Brendan McDermid

NEW YORK (Reuters) - While U.S. stocks are now in an “accelerating phase,” billionaire investor Jeffrey Gundlach is predicting that the S&P 500 will post a negative rate of return in 2018.

One of the best investments for 2018 will be commodities, Gundlach, chief executive of DoubleLine Capital and known on Wall Street as the “Bond King,” said on an investor webcast on Tuesday.

The S&P 500 “may go up 15 percent in the first part of the year, but I believe, when it falls, it will wipe out the entire gain of the first part of the year with a negative sign in front of it,” Gundlach said.

Gundlach said his bearishness on the S&P and other risk assets including U.S. corporate bonds stems from the notion that the Federal Reserve has begun its era of “quantitative tightening.”

He said if the 10-year U.S. Treasury note yield goes above 2.63 percent, U.S. stocks will be affected. “If the 10-year goes above 2.63 ... it will accelerate higher and equity markets are going to be spooked and maybe that’s the cocktail that is coming our way.”

Gundlach, who manages $119 billion at Los Angeles-based DoubleLine, said investors are “celebrating the magic moment of stronger economic growth domestically, stronger economic growth globally, stronger earnings.” He said overall he is seeing “a lot of euphoria out there, a lot of bullishness” on the equity markets.

Gundlach said the financial markets have not priced in a “more hawkish” European Central Bank. “Maybe that’s why the euro has started to rally,” he said, adding: “Maybe it will rally further.”

Gundlach said he believes the price on bitcoin has hit its peak. “The high for bitcoin is in,” he said. “It’s just a thing that is out there, unproven. I have a theory that bitcoin is very different than what people think. People think that it is tremendously safe and anonymous and get can’t be hacked and all that stuff. I have feeling that it is the opposite.

“I do not own bitcoin. This type of investment is very, very different from my conservative DNA,” Gundlach said.

Reporting by Jennifer Ablan; Editing by Lisa Shumaker and James Dalgleish