In his January webinar, DoubleLine Capital founder and CIO Jeffrey Gundlach delivered predictions for 2021, including that the market would undergo a “regime change” in which U.S. equities will lag the rest of the globe, inflation and volatility will rise and the dollar will weaken. This according to a recent article in Institutional Investor.

Here are some key takeaways from Gundlach’s comments:

• “You need to fully reverse the negative performance—and get back to pre-COVID GDP trend.” He noted that the GDP trend growth was about 2.5% since 2016 and we need to return to that level.
• Emerging market stocks have been outperforming, Gundlach noted, adding that investors should overweight Asian markets and that Latin America offers opportunity “if you have the risk tolerance.”
• Volatility averaged almost 30 in 2020 (based on the VIX), triple its 2013 level and, according to Gundlach, a harbinger of “significant regime change.”
• Business leaders will face tough decisions necessary to accommodate the increased preference of employees to work from home compared to before the COVID pandemic.
• While the consumption of goods has grown, it has not fueled job creation (i.e., online shopping).
• The growth in both fiscal and trade deficits (the former much more than the latter) means the dollar is in a secular decline.
• Inflation represents the big “game changer,” says Gundlach, as an increase could lead to higher correlation between stock and bond prices.
• Gundlach described a “winning” investment formula of half cash and Treasury bonds, 25% in equities (mostly emerging and Asia) and 25% in real assets (real estate or gold) as a hedge against inflation.
• Equities are expensive, he said, but not relative to bonds.
• Gundlach expects the yield curve to steepen until the Fed controls it.