Jeffrey Gundlach, CEO of DoubleLine Capital, delivered a fairly grim assessment in a recent webcast, Financial Advisor reports. Characterizing the recent bump in stocks as a bear-market rally, Gundlach pointed to a combination of factors that will put downward pressure on markets, expressed concern about the impact a Fed rate increase would have, and described positive market sentiment as perplexing. He identified valuation as one problem: “The S&P charts look horrific,” he said, “when you take out outliers from mining and energy, the valuation levels are a little scary.” He also said equities are closely correlated with the price of oil and expressed doubt that the recent increase in oil prices would be sustainable. “The rally has been insignificant in the context of the long-term decline,” he opined, continuing: “it looks like time is not on your side unless oil prices rally above $45,” noting that some “sectors are bleeding money every day.” He also described China’s reported 7% GDP growth as unrealistic or falsified, stating: “the Chinese business activity index hasn’t been above zero since 2013” and “Chinese exports and imports are both negative year over year.”

Gundlach does not see an impending recession, however. “A lot of the problems in the credit market and the stock market have nothing to do with the broad economy,” he observed, pointing instead to “stress metals and energy.” Yet, he explained: “I see a lot of forecasts for 7 percent or 10 percent earnings growth, but that is inconsistent with 2 percent GDP growth and with the Fed’s dots saying they will be tightening.” Thus, he suggested the Fed should reconsider its plans to tighten, noting that “the market collapsed after they raised rates” in December 2015,” and “it’s clear the markets fear deflation and want inflation.” But he also observed that “negative rates are bad for the banking system.” He identified gold as a positive (“stay long gold, trim gold miners”) and suggested it may be a bulwark against low or negative rates. Regarding the Fed plans to raise rates, he said “we entered the year with a 50 percent chance of the Fed raising the rates in March,” but “on February 11, the probability of a rate hike any time between now and November hit zero.” He opined: “I think it would be dicey to raise rates again, even though some of the indicators have markedly improved.”