Gundlach Sees Bull Market Over If 10-Yr. Treasury Tops 3%

Jeffrey Gundlach thinks that 2018 will be a down year for equities, with a negative S&P 500 return.

In a Tuesday webcast entitled “Inflation is Inflationary,” Gundlach, CIO of DoubleLine Capital, reiterated his conviction that risk assets will suffer in 2018, but dismissed the idea that a recession was immi-nent.

“It seems to me that we are going to have a negative rate of return on the S&P 500 this year, and my conviction on that is pretty high—higher than my conviction on whether bond yields break to the up-side or the downside,” said Gundlach, who added that 10-year Treasury yields should break to the upside.

Gundlach predicted that if the 10-year Treasury yield reaches 3 per-cent, the nine-year bull market will come to an end. Such a move would increase his conviction that the S&P 500 will end 2018 in the red.

The 10-year U.S. Treasury has hovered over 2.8 for several weeks, a rise that coincided with volatility in equity markets.

“This is shaping up to be a very different year from the one that just passed in 2017,” said Gundlach. “We no longer have non-volatile markets. We’ve moved into a regime of volatility.”

Gundlach offered five indicators that suggest a recession is not likely in the near term: rising leading economic indicators, expanding manufacturing production, stable real GDP, stable business and con-sumer sentiment and stable high-yield spreads.

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Is 3% on the 10 Year US Treasury the “tipping point” for the stock market “to go down”? We will see! —Drew

A Decade After Bear’s Collapse, the Seeds of Instability Are Germinating Again

A big financial-firm collapse in near future is exceedingly unlikely, but another crisis isn’t

Since the bailout of Bear Stearns Cos. a decade ago this week and the failure of Lehman Brothers six months later, regulators have made it their mission to prevent a repeat.

Yet even though a big financial-firm collapse in the near future is exceedingly unlikely, another crisis isn’t. Bear and Lehman were the manifestation of deeper economic forces that since the 1970s have produced crises roughly every decade. They are still at work today: ample flows of capital across borders, mounting debts owed by governments, corporations and households, and ultralow interest rates that nurture risk-taking in hidden corners of the economy.

For a quarter-century after World War II, the world was virtually crisis-free. Widespread defaults during the Great Depression and the war left a relatively debt-free path for economic growth, says Harvard University economist Kenneth Rogoff, co-author with Carmen Reinhart of “This Time is Different: Eight Centuries of Financial Folly.” Capital controls limited how much money could cross borders, while rules such as interest-rate ceilings limited who could borrow and how much.

By the early 1980s, though, deregulation had allowed capital to flow freely within and across borders and crises became a regular oc-currence: the Latin American debt crisis that began in 1982, the U.S. commercial real estate and savings and loan crisis of the 1980s, the Asian and Russian financial crisis of 1997-98, the dot-com bubble of 1998-2000, the U.S. mortgage crisis of 2007-2009 and the Eu-ropean sovereign debt crisis of 2009-2013, interspersed with country-level crises such as in Scandinavia in the early 1990s and Japan throughout that decade.

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Huge worldwide debt with rising interest rates is a major problem that could rock the market.—Drew

 

Taking a comprehensive look at the overall current stock market, you can see the chart below representing eight major in-dices and their returns through the week ending March 9, 2018. In a truly diversified portfolio, the portfolio’s total return is determined by the performance of all of the individual positions in combination – not individually.

So, understanding the combined overall performance of the indices below, simply average the 7 indices to get a better overall picture of the market. The combined average of all 7 indices is 1.05% year to date.

Data Source: Investors FastTrack, Yahoo Finance

Past performance is not a guarantee of future results. This Update is limited to the dissemination of general information pertaining to its investment advisory services and is not suitable for everyone. The information contained herein should not be construed as personalized investment advice. There is no guarantee that the views and opinions expressed in this newsletter will come to pass. Investing in the stock and bond markets involves gains and losses and may not be suitable for all investors. Information pre-sented herein is subject to change without notice. Horter has experienced periods of underperformance in the past and may also in the future. The returns represented herein are total return inclusive of reinvesting all interest and dividends.

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