Jeffrey Gundlach Looks Ahead to 2025 in “Just Markets”

In “Man Leaving a Bus: What Does It Mean?,” the 2025 edition of “Just Markets,” DoubleLine CEO Jeffrey Gundlach works on the idea that society is undergoing profound change from patterns and trends that prevailed for decades. Among other factors, he cites an almost unprecedented U.S. Treasury curve steepening in the wake of the Federal Reserve starting rate cuts, the wreckage of once-predictive macro signals and the exit from the world stage of an aging generation of political and market leaders. Mr. Gundlach identifies what he thinks are expensive and cheap asset classes – and expensive and cheap sectors within them. And he shares his ideas for allocating among those risk-opportunity sets and subsets.

(5:17) Mr. Gundlach’s read of the “bloodless verdict of markets” in 2024, including interestingly comparable returns of the S&P 500 Index, the Nasdaq Composite Index and gold. Mr. Gundlach says that he’s struck by that “a store of safety like gold, which I recommended a year ago, basically held in there with the S&P 500 and the Nasdaq.” A strong U.S. dollar contributed to U.S. stocks massively outperforming equity markets in Europe, Japan and emerging markets.

(7:40) Valuations of various asset classes near the end of 2024: U.S. equities and most U.S. fixed income, measured by percentile rank within their respective valuation histories, appear expensive, with the S&P 500 “just about the highest valuation ever.” Mortgage spreads are the only U.S. asset class that look cheap versus history.

(10:35) A survey of recession indicators, once reliable but now apparently broken, such as the Leading Economic Index and the copper-gold ratio. Mr. Gundlach takes their failure to be another sign that the world has entered a new secular era in which many previous relationships and cyclical patterns cease to repeat themselves. One still-use indicator to watch: credit card write-offs, which have surged to levels “where they were pre-pandemic, and the trend was bad pre-pandemic.” Having spent their stimulus checks, people “have gone back to credit-card spending.”

(16:19): Trump Effects, including surging small-business optimism and consumer optimism in anticipation of a Nov. 4 election victory by Donald Trump and the fact of it.

(22:33) “Rate cuts are acting differently,” Mr. Gundlach notes. For the first time, the 10-year Treasury yield has risen – by a significant increment – after the Fed began to cut the federal funds rate.

(30:11) A survey of inflation indicators.

(35:37) A survey of labor costs, labor markets and unemployment gauges, including their distortion due to large volumes of illegal immigration.

(39:38) The precarity of the U.S. government’s fiscal position and the threat of a recession exacerbating that situation.

(44:26) A survey of equities, including the extended valuations of the S&P 500 and the cases for diversifying away from market-cap-weighted large caps into equal-weighted large caps and from growth into value.