Jeffrey Gundlach says all the ‘Goldilocks’ talk makes him nervous, thinks recession is still likely

Jeffrey Gundlach speaking at the 2019 Sohn Conference in New York on May 6, 2019.

Adam Jeffery | CNBC

DoubleLine Capital CEO Jeffrey Gundlach believes the Federal Reserve poured cold water on hopes for a “Goldilocks” economic scenario benefiting risk assets, and the bond king stuck to his call for a likely recession this year.

“When I hear the word ‘goldilocks,’ I get nervous,” Gundlach said Wednesday on CNBC’s “Closing Bell.” “When you hear people saying ‘Goldilocks’ and everybody in the room [is] nodding their head in a north-south direction and says ‘yeah, it’s Goldilocks,’ that means everything is priced to something resembling perfection. … Today, Jay Powell took Goldilocks away,” he said, referring to Federal Reserve Chair Jerome Powell.

Many investors had been betting that the economy wasn’t hurt too badly by the Fed’s series of aggressive rate hikes over the past year, leaving an economic expansion that’s not too hot, or too cold.

But Gundlach believes the market’s faith was blindly optimistic and that Powell’s message on Wednesday crushed the “Goldilocks” theory.

The Fed kept interest rates unchanged at 5.25% to 5.50% on Wednesday, while making it clear that it is not yet ready to ease up on the brakes. Stocks tumbled to session lows as Powell said in a press conference that the central bank would likely not have the level of confidence about inflation to lower rates at its next policy meeting in March.

“For now, we think there will be a stall in the inflation rate coming down,” Gundlach said. “That will probably mean that the market is not going to get the Goldilocks picture that it was euphoric about a couple of weeks ago.”

The stock market started 2024 with a bang with the S&P 500 rising to consecutive record highs. The large-cap equity benchmark shed 1.6% Wednesday alone, halving the 2024 gain to 1.6%.

Gundlach said he still expects to see a recession hitting in 2024. He suggested that investors may want to raise cash to fund buying opportunities when an economic downturn arrives.

“I think you want cash to be able to get into emerging market trade once the economy slows and perhaps goes into recession,” Gundlach said. “Globally, there are certainly many pockets of recession at present. If we go into the United States recession, I think we will see a buying opportunity and you want cash for that.”

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