Jeffrey Gundlach Predicts Recession By Summer, Cites Parallels To Dot-Com And Housing Bubbles

Renowned investor Jeffrey Gundlach has 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.

What Happened: Gundlach, CEO of DoubleLine Capital, pointed out the market’s resemblance to the dot-com bubble of 2000 and the housing bubble of 2008 in a recent interview with Pensions & Investments, reported Business Insider on Thursday. He highlighted the expanding market driven by momentum and grabbing, a phenomenon witnessed in the years preceding the dot-com and housing bubbles.

This trend has led to the overvaluation of blue-chip stocks and a relaxation of value standards, with investors moving toward riskier assets.

“I think we’ll be in recession by the middle of this year,” he said.

Gundlach’s comparison is particularly concerning as the S&P 500 halved after both the dot-com and housing bubbles burst. Despite the index’s 24% surge last year and a 2% increase this year, he believes it is overvalued.

He questioned the market’s behavior, particularly the rally in stocks and other securities, despite rising consumer-debt delinquencies and a worsening commercial real estate market.

See Also: Elon Musk Tweets Optimus Robot Video, OPTI Token Jumps 25%: ‘Opportunity For Quick Money-Making,’ Says Expert

Gundlach attributed the buying frenzy to sentiment rather than fundamentals like cash flows or net asset values, cautioning against this optimism, which he believes has been fueled by hopes of inflation fading, the Federal Reserve slashing interest rates, and the economy avoiding a recession.

He also expressed concern about the national debt reaching record highs due to excessive government spending and years of near-zero interest rates, comparing it to giving a child too much candy.

Gundlach recommended that investors keep 20% to 25% of their portfolios in cash to be ready for the inevitable market correction.

Why It Matters: The warnings from Gundlach come in the wake of increasing concerns about the current market situation. Earlier this week, JPMorgan Chase & Co.‘s quantitative strategists drew parallels between the current U.S. equity market’s structure and the notorious dot-com bubble of the early 2000s. Their analysis indicated a concerning concentration of market power in the hands of the top 10 stocks on the MSCI USA Index, reminiscent of the worrisome market conditions seen two decades ago.

Moreover, as the market awaits the release of the “Mother Of All Reports” which will determine the stock market direction, Gundlach’s warning adds to the growing sense of unease among investors.

Read Next: These Two Assets Historically Limited To Ultra-Wealthy Investors Have Seen Triple Digit Returns Over The Past Decade – Vint Expands Access With Latest Fund

Image via Shutterstock