Elite investor Jeffrey Gundlach compares the AI boom in stocks to the dot-com bubble — and warns of economic pain

Jeffrey Gundlach

DoubleLine Capital CEO Jeffrey Gundlach.CNBC/Getty Photos

  • Jeffrey Gundlach in contrast the AI-fueled growth in shares to the dot-com bubble.

  • DoubleLine Capital’s billionaire CEO predicted sticky inflation and an financial droop.

  • Two different market gurus, Invoice Gross and John Hussman, warned of maximum inventory valuations this week.

Jeffrey Gundlach has warned the AI-crazed inventory market reminds him of the dot-com bubble — and predicted a painful mixture of cussed inflation and financial decline lies forward.

“This feels loads like 1999,” DoubleLine Capital’s CEO mentioned on an X Spaces conversation this week.

The billionaire investor famous the Nasdaq index surged 80% within the fourth quarter of 1999, however 12 months later it was down 85% from its peak.

Gundlach described the present market as “grabby” and momentum-driven, and mentioned he would solely spend money on an equal-weighted index as he is “not desirous about proudly owning seven shares.”

The fund supervisor was referring to the so-called Magnificent Seven, a bunch together with Nvidia and Microsoft that has grown so massive it accounts for a large chunk of market cap-weighted indexes just like the S&P 500 and Nasdaq 100.

Gundlach acknowledged that members like Meta are extremely worthwhile, in contrast to their dot-com predecessors. However he repeated the previous maxim that the quicker and better issues go up, “the more durable they fall.”

“That is no place to be taking contemporary, aggressive positions in something dangerous,” Gundlach mentioned. “There’s numerous danger in markets which have run this far.”

Along with AI, the prospect of interest-rate cuts this yr has despatched shares skyward. Decrease charges have a tendency to spice up firms’ gross sales by encouraging prospects to spend as a substitute of save, and often carry company income by reducing curiosity prices.

Gundlach warned {that a} latest enhance in crude oil costs would in all probability speed up inflation. He additionally cautioned that if progress falters, the Fed may lower charges too low and shrink its stability sheet too aggressively, inflicting costs to surge once more.

“We will have an inflationary financial slowdown,” he mentioned, flagging the chance of a “stagflationary sort of an atmosphere.”

Exuberance and bubbles

Invoice Gross, one other billionaire bond investor, echoed Gundlach’s concern about overstretched shares in an outlook printed on Friday.

The PIMCO cofounder questioned why the market is buying and selling at file highs when rates of interest have jumped from just about zero to north of 5% over the previous two years. That is diminished the attraction of dangerous belongings like shares by lifting the assured returns from Treasurys and financial savings accounts.

“Fiscal deficit spending and AI enthusiasm have been overriding elements and momentum, and ‘irrational’ exuberance have dominated markets since 2022,” Gross mentioned.

John Hussman, the president of Hussman Funding Belief, went a step additional in a analysis word on Friday.

The longtime market bear warned that shares have solely been this extraordinarily valued twice earlier than: the day earlier than the market peaked in January 2022, and on the peak of the 1929 bubble that preceded the Wall Road Crash and Nice Melancholy.

“My impression is that buyers are presently having fun with the double-top of probably the most excessive speculative bubble in US monetary historical past,” Hussman mentioned.

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