Jeffrey Gundlach, founder of asset manager DoubleLine Capital, is not optimistic about the outlook for stockmarkets. The UK's referendum on European Union membership and Janet Yellen's decision not to raise rates has created "economic and political uncertainty", he tells Barron's. A Brexit-induced recession would hit the US, since "the companies in the Standard & Poor's 500 get more than 40% of their revenue from outside the US, and a big piece of that is Europe".
In the medium term there could be even more political instability, due to the fact that "robots are taking an awful lot of jobs". For example, there are many people who earn their living from driving, he says. "You get a driverless car, and all of a sudden they're unemployed." And automation certainly isn't the only threat to stability, since high debt and demographics are also "putting a big headwind onto economic growth".
Gundlach is sceptical about forecasts of strong profit growth. "If nominal GDP is rising by less than wages" then "profit margins must be squeezed". Central bank policies mean that stocks could keep rising "I wouldn't be surprised if the S&P hit a new high" above 2,200, he says but it's a risky bet. "I would rather miss that 100 points than be the fool who bought at 2,100, only to watch it go to 1,900."
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One investment Gundlach is bullish on is emerging market bonds. "The weaker dollar has been very good for emerging market (EM) debt, which is up 12% year to date." Since there is "almost zero chance the Fed will raise interest rates through November of this year", this means that "the dollar is going to have a hard time", soEM bonds should continue to do well.
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