Need to Know: ‘Be conservative’ — Jeffrey Gundlach on how to invest in this dicey environment

Just last week, one financial industry veteran warned of “devastating losses” should a yield-curve inversion usher in the next recession. As you can see by this chart, that’s been a bankable signal over the past three decades:

Jeffrey Gundlach’s not nearly as pessimistic about the prospect of a flattening or inverting yield curve, but the billionaire founder of DoubleLine Capital isn’t exactly bubbling over, either.

The “Bond King” told Barron’s that every indicator he follows flashed positive to start the year, but now that we’re halfway through 2018, the outlook’s not so rosy and investors need to be cautious.

“There’s a narrative out there that says the flattening yield curve isn’t sending any message about a recession, and that couldn’t be more wrong,” he said. “In fact, with rates so low, the yield curve signal is even stronger than usual.”

See: Why that flawless predictor of recession and a bear market is wrong this time

Gundlach warns that this closely watched signal is flashing yellow and needs to be respected as we edge ever closer to a recession. The ramping up of quantitative tightening isn’t helping, he says.

“It’s like a death wish,” Gundlach explains. “The U.S. is taking on hundreds of billions of dollars of debt while raising rates, which means our debt-service payments are going to be under serious pressure to the upside.”

So how should we play it?

In our call of the day, Gundlach recommends the Invesco Senior Loan ETF BKLN, +0.00%  along with the SPDR S&P Oil & Gas Exploration & Production ETF XOP, +0.05% . That first fund offers exposure to senior loans issued by banks, while the other tracks a rallying group of energy stocks.

Investors heeding his advice this time around are hoping his picks fare better than the ones he made for Barron’s back in January. As you can see in this breakdown, both iShares MSCI Brazil EWZ, +1.95%  and Tortoise MLP NTG, +0.38%  are in the red since early in the year.

Still, Gundlach urges patience with both, considering their bargain levels.

Overall, he told Barron’s that he sees a “middling year” for the market — and then a sketchier 2019.

“Everything seemed magical in January, what with synchronized global growth and markets accelerating to the upside,” he said. “We haven’t been able to get back to that frame of mind since February — or that market level.”

“Be conservative,” he also said.

The market

That magic feeling might not be in the air this morning, and futures for the Dow Jones Industrial Average YMU8, +0.06%  and S&P 500 ESU8, -0.02%  are little changed to start the week. Gold GCU8, +0.20%  is inching higher as is silver SIU8, +0.22%  . Crude CLU8, -1.90%  is sharply lower. Europe SXXP, -0.19% is mixed, while Asia markets ADOW, -0.21%  ended mostly down. In cryptos, bitcoin BTCUSD, +3.51%  is trading around $6,500.

See the Market Snapshot column for the latest action.

The buzz

Amazon AMZN, +0.91%  Prime Day is upon us. The annual shopping event kicks off at 3 p.m. Eastern today and runs through July 17. Bonus: You have an extra six hours to spend your money this year, thanks to Amazon extending the promotion to 36 hours from 30 hours last year.

Boeing BA, +1.38%  is mulling its first new multibillion-dollar commercial airline project in 15 years, according to CEO Dennis Muilenburg. “We’re advancing our business case,” he said at a news conference Sunday. “Our plan is to make a launch decision on that airplane in 2019. We still are targeting a 2025 entry-into-service date.”

Goldman Sachs GS, -0.36%  is planning to name President David Solomon to succeed Lloyd Blankfein as CEO as early as this week, according to the NY Times. While the move isn’t necessarily surprising, the promotion to the powerful post had apparently not been expected until later this year.

Bank of America BAC, -0.76%  looks set for an up day after its earnings report, and Netflix NFLX, -4.28%  is expected to post results after the close.

Read: Netflix earnings will be all about subscriber additions, especially overseas

Also see: Earnings season kicks off as expected—with a fizzle, not a bang

China’s economic expansion slowed a notch in the second quarter, weighed down by a top-priority government debt cleanup even before growth takes an expected hit from the trade fight with the U.S.

The quote

“I think the European Union is a foe, what they do to us in trade. Now, you wouldn’t think of the European Union, but they’re a foe” — President Donald Trump, in an interview with “CBS Evening News” from Scotland over the weekend.

Trump also has been setting expectations low ahead of a today’s big meeting with Russian President Vladimir Putin — and reportedly has suggested the U.K. sue the European Union.

The stat

$20 — That’s how much “Make America Great Again” hats, usually priced at around $10, could go for with Trump’s new tariffs, according to one merchandiser interviewed by ABC News. MAGA!

The chart

Everything you ever wanted to know about America’s history of trade wars, in one giant infographic from Visual Capitalist.

Read more: How Trump’s European auto tariff proposal could backfire

And see: Trade-war tracker — the new tariffs, imposed and threatened

Random reads

A chilling remembrance of what happened that day at Altamont.

The “ultimate list” of the most useful Finance Twitter accounts.

Norway’s millennials are different than hours. For starters, they’re rich.

He was the mob, until the mob came for him — an internet tale from the front lines of social justice warfare.

For serious students of economic history, this is a must read.

A preview of Sacha Baron Cohen’s new show. Wow:

[embedded content]

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. Be sure to check the Need to Know item. The emailed version will be sent out at about 7:30 a.m. Eastern.

Follow MarketWatch on Twitter, Instagram, Facebook.

Be Sociable, Share!

Related Posts


MarketTamer is not an investment advisor and is not registered with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory Authority. Further, owners, employees, agents or representatives of MarketTamer are not acting as investment advisors and might not be registered with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory.

This company makes no representations or warranties concerning the products, practices or procedures of any company or entity mentioned or recommended in this email, and makes no representations or warranties concerning said company or entity’s compliance with applicable laws and regulations, including, but not limited to, regulations promulgated by the SEC or the CFTC. The sender of this email may receive a portion of the proceeds from the sale of any products or services offered by a company or entity mentioned or recommended in this email. The recipient of this email assumes responsibility for conducting its own due diligence on the aforementioned company or entity and assumes full responsibility, and releases the sender from liability, for any purchase or order made from any company or entity mentioned or recommended in this email.

The content on any of MarketTamer websites, products or communication is for educational purposes only. Nothing in its products, services, or communications shall be construed as a solicitation and/or recommendation to buy or sell a security. Trading stocks, options and other securities involves risk. The risk of loss in trading securities can be substantial. The risk involved with trading stocks, options and other securities is not suitable for all investors. Prior to buying or selling an option, an investor must evaluate his/her own personal financial situation and consider all relevant risk factors. See: Characteristics and Risks of Standardized Options. The educational training program and software services are provided to improve financial understanding.

The information presented in this site is not intended to be used as the sole basis of any investment decisions, nor should it be construed as advice designed to meet the investment needs of any particular investor. Nothing in our research constitutes legal, accounting or tax advice or individually tailored investment advice. Our research is prepared for general circulation and has been prepared without regard to the individual financial circumstances and objectives of persons who receive or obtain access to it. Our research is based on sources that we believe to be reliable. However, we do not make any representation or warranty, expressed or implied, as to the accuracy of our research, the completeness, or correctness or make any guarantee or other promise as to any results that may be obtained from using our research. To the maximum extent permitted by law, neither we, any of our affiliates, nor any other person, shall have any liability whatsoever to any person for any loss or expense, whether direct, indirect, consequential, incidental or otherwise, arising from or relating in any way to any use of or reliance on our research or the information contained therein. Some discussions contain forward looking statements which are based on current expectations and differences can be expected. All of our research, including the estimates, opinions and information contained therein, reflects our judgment as of the publication or other dissemination date of the research and is subject to change without notice. Further, we expressly disclaim any responsibility to update such research. Investing involves substantial risk. Past performance is not a guarantee of future results, and a loss of original capital may occur. No one receiving or accessing our research should make any investment decision without first consulting his or her own personal financial advisor and conducting his or her own research and due diligence, including carefully reviewing any applicable prospectuses, press releases, reports and other public filings of the issuer of any securities being considered. None of the information presented should be construed as an offer to sell or buy any particular security. As always, use your best judgment when investing.