On Tuesday, December 11th, the Chief Executive of DoubleLine Capital, Jeffrey Gundlach, said that the Standard and Poor 500 index is likely to drown below February 2018 lows. According to Jeffrey Gundlach, the global economic growth is sluggish and lacks momentum, which is pressurizing the corporate profitability.
Altogether, the issues are triggering an inflammation in to the US stocks. He also mentioned about another major dynamic, the Federal Reserve’s enormous balance sheet and an uncertain rate hike, to play pivotal role in the recent leg of sell-off.
Gundlach is named as the bond king of Wall street and he overseas more than $123 billion of assets. However, the bond king mentioned that there had been a high correlation between the central bank rate and global equity markets.
Followed by the financial crisis, while the Federal Reserve has been shrinking its balance sheet and a pause in the central bank rate might have been upcoming, a major drop in equity market is just a matter of time, added the Wall St.
Bond King. “Maybe that is what really has gotten things in the wrong way. The stock market has been following the Fed’s shrinkage of the balance sheet of quantitative tightening to the downside,” commented Gundlach in response to S&P 500’s large-scale sell-off.
On February 9th, the S&P 500’s intraday low was at $2,532.69, and on Tuesday, December 11th, the S&P 500 was bottomed at $2,636.78, a hairsbreadth above the February low, considering the bearish market pattern, where sellers might just have taken complete control.
However, on Wednesday, December 12th, investors are experiencing a little relief over the ongoing US-China trade talks and an improved trade relationship, as S&P 500 has experienced a slight gain of 1.59%, currently reigning at $2,678.78, yet the upcoming market data followed by December 19th’s FED monetary policy might strongly echo the prediction of Wall St. Bond King.