Gundlach Calls 2021 The Year of Regime Change

Gundlach Calls 2021 The Year of Regime Change

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.