Billionaire bond investor and DoubleLine Capital founder Jeffrey Gundlach is the latest Wall Street veteran to warn that the worst is yet to come for stock prices.
He joins famed investor Jim Rogers, who said on Tuesday that he expects the market to stay elevated for a while, but ultimately another stock market route is on the way.
“I expect in the next couple of years we’re going to have the worst bear market in my lifetime,” Rogers said in a phone interview.
Gundlach may not be as bearish as Rogers, but he did say earlier in March that there was a 90% chance the United States would enter a recession before the end of the year due to the effects of the coronavirus pandemic.
In the short-term Gundlach said during a webcast on Tuesday that he believes that the lows we saw in March will be eclipsed in April due to the uncertainty around the coronavirus outbreak and when we can expect the number of new cases to slow.
“I think we are going to get something that resembles that panicky feeling again during the month of April,” while adding “The low we hit in the middle of March, I would bet that low will get taken out.”
Mark Hackett, chief of investment research at Nationwide agrees with Gundlach and warns that there is compelling evidence that nearly every bear market has a few rallies before plunging lower.
“Last week’s double-digit gain for markets was a welcome relief rally, though market bottoms are rarely as clean as this one has been. In 2000/01, there were four rallies of greater than 20% before ultimately reaching a bottom, and in the financial crisis, the S&P 500 had a false breakout of 27% before hitting a bottom.”
Gundlach also said that any projections that the US economy will quickly recover once the spread of the virus slows were too optimistic and that the hopes of a quick recovery were causing the markets to act “somewhat dysfunctionally.”
“We will get back to a better place, but it’s just not going to bounce back in a V-shape back to January of 2020,” he said.
Gabriela Santos, JPMorgan’s global market strategist agrees with Gundlach that we aren’t going to get the quick “V-shaped” recovery that most are predicting.
She believes that we’ll start a slower “U-shaped” recovery once coronavirus infection rates peak.
“A ‘V-shape’ I think we should unfortunately discount at this point, because even when infection rates peak for COVID-19 around the world, what the China experience is teaching us is even though the government begins to relax some social distancing guidelines, individuals themselves are still very careful about how exactly they go back to their day to day lives,” she said.
“So demand was quick to shut down, but it’s actually much slower to come back online,” she added. “The better analogy here is a U. There’s a very sharp drop in activity in the first half, there’s a bit of a stall in the second, and then in 2021 is when that strong rebound begins.”