Jeffrey Gundlach, the CEO of DoubleLine, has cautioned that the current stock market is as overvalued as it was at the beginning of the previous bear market, which could signal a looming downturn.
What Happened: The billionaire investor, speaking at the Exchange Traded Funds (ETF) conference on Tuesday, warned that stocks are currently trading at levels similar to those seen at the onset of the previous bear market, reported CNBC.
"The stock market on traditional measures — P/E, price to book, all that stuff — is as overvalued as it was two years ago, but bond yields are about 500 basis points higher at the short end, and about 400 basis points higher at other parts of the curve. So there's a totally different valuation metric now," Gundlach said.
The previous bull market for stocks peaked about two years ago, with the S&P 500 reaching a record high on Jan. 3, 2022. The index then dropped by approximately 25% to its lowest point in October of that year before rebounding in 2023 and setting a new record high last month.
Gundlach’s cautious stance on stocks is reflected in his recommended balanced portfolio approach. Instead of the traditional 60-40 portfolio split between stocks and bonds, Gundlach suggested a 45% bond and 25% cash allocation, emphasizing the need to be prepared to buy when prices drop.
Despite his overall cautious outlook, Gundlach expressed optimism about certain areas of commercial real estate and high-yield debt, which he believes offer attractive yields and could be relatively safe for investors.
Previously, Gundlach has also issued a stark warning, drawing parallels between the current market situation and the infamous dot-com and housing bubbles. He predicts that this "euphoria" will soon come to an end, leading to a recession by this summer.
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