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- Jeffrey Gundlach compared the AI-driven stock market boom to the dot-com bubble.
- The billionaire CEO of DoubleLine Capital predicted persistent inflation and an economic downturn.
- Two other market experts, Bill Gross and John Hussman, warned this week about extreme stock valuations.
Jeffrey Gundlach has warned that the stock market’s AI frenzy is reminiscent of the dot-com bubble, predicting a painful combination of stubborn inflation and economic decline.
“This is a lot like 1999,” DoubleLine Capital’s CEO said on the show. Conversations in X Space this week.
The billionaire investor noted that the Nasdaq index soared 80% in the fourth quarter of 1999, but was down 85% from its peak 12 months later.
Gundlach described the current market as “volatile” and driven by momentum, and said he only invests in equal-weighted indexes because “I’m not interested in owning seven stocks.”
The fund manager was referring to the so-called Magnificent Seven. This group, which includes Nvidia and Microsoft, has grown so large that it accounts for a large portion of market-cap weighted indexes such as the S&P 500 and Nasdaq 100.
Gundlach acknowledged that unlike his dot-com predecessors, members like Meta are profitable. But he reiterated the old adage that the faster and higher things go, the “harder they fall.”
“This is not the place to take fresh, aggressive positions on things that are risky,” Gundlach said. “There are a lot of risks in a market that has progressed this far.”
In addition to AI, the prospect of interest rate cuts this year is driving stocks higher. Lower interest rates tend to increase a company’s sales by encouraging customers to spend rather than save, and typically boost company profits by reducing interest costs.
Gundlach warned that the recent rise in oil prices will likely accelerate inflation. He also warned that if growth slows, the Fed could cut rates too low and shrink its balance sheet too aggressively, causing prices to soar again.
“There will be an economic slowdown due to inflation,” he said, warning of the risk of a “stagflation-type environment”.
vibrancy and bubbles
Fellow billionaire bond investor Bill Gross echoed Gundlach’s concerns about excessive stock prices in an outlook released Friday.
The PIMCO co-founder questioned why the market is trading at record highs even as interest rates have risen from virtually zero to over 5% over the past two years. This has raised guaranteed returns on U.S. Treasuries and savings accounts, making risky assets like stocks less attractive.
“‘Irrational’ exuberance is dominating the market from 2022 onwards, with deficit spending and AI enthusiasm outweighing the drivers and momentum,” Gross said.
John Hussman, president of Hussman Investment Trust, went a step further in a research note on Friday.
Longtime market bears warned that the only two times in the past stocks had risen so dramatically. It was the day before the market peaked in January 2022 and at the height of the 1929 bubble that preceded the Wall Street crash and the Great Depression.
“My impression is that investors are currently enjoying a double top, the most extreme speculative bubble in U.S. financial history,” Hussmann said.
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