DoubleLine Capital CEO Jeffrey Gundlach believes the Fed is set to cut rates over the coming months – a move that could trigger breakouts for a particular group of assets.
In an interview with CNBC Television, the billionaire “Bond King” says that a deeper look at the US labor market suggests that the economy is weakening and that the Fed may need to step in to stimulate growth.
-->In July, the Bureau of Labor Statistics (BLS) revised down May and June job growth by a combined 258,000.
Amid the downward revision, Gundlach highlights that the household survey, which comes from people’s self-reported work status, has been in negative territory for most of the year.
“The jobs created in the household survey are negative for the last three months cumulatively and the last six months cumulatively. There’s negative job growth from the household survey…
We always say [the labor market] is a lagging indicator… It appears it’s starting to fall in line with some of these other indicators, which have been suggesting weakness for quite some time.
I think that’s where we are, and I think we’re going to see the Fed cut rates at least a couple of times, probably two, maybe three this year.”
Gundlach predicts that equities trading outside the US stock market will ignite rallies once the Fed begins to cut rates.
“I think that these non-US trends are absolutely wrapped up and in place because the dollar is weakening, and it’s going to continue to weaken as the Fed cuts rates, and other countries don’t.
So I think as a dollar-based investor, you’re making money on the currency translation, and depending on what day you look at, you’re having similar types of gains on just the absolute percentage basis, but when you translate it into the dollar, you’re doing much better in some of these other places than you are in the US.”
Banking giant Goldman Sachs holds a similar view, predicting that a Fed rate cut will trigger FOMO (fear of missing out) rallies in the European stock market.
“I think from here. One of the key drivers beyond the long-term capital allocation theme is really just relative monetary policy. We’re at the point now where the ECB (European Central Bank) may be done [cutting rates], at least for now. But there is pressure on the Fed to cut…
There is definitely room there for further easing in the front end of the US curve, and that can catalyze another move higher in the euro.
And when the euro is rallying, it is the ultimate FOMO trade that I think people now are going to have to re-risk into.”
