Gundlach’s 5 Top Market, Economic Predictions for 2023 and Beyond

1. U.S. stocks are not poised for more short-term upside.

“It’s hard to love equities when the risk premium is the lowest in 17 years by a lot,” Gundlach said, noting the S&P 500’s risk premium, which reached 3.5 in 2021, recently stood at 0.61.

“We’re not priced for a recession here at all with the equity risk premium,” he added, noting the economy won’t be as robust next year.

The DoubleLine founder said he doesn’t recommend U.S. equities. While U.S. companies may post earnings increases next year, “I think they’re overstated” and “the market is pretty overvalued,” Gundlach said.

Not counting the seven or eight top-performing stocks in the S&P 500, the index has returned about 2% year to date, not much different from the bond market, Gundlach said. Global bond index yields are twice as high as stock index dividend yields, which is similar to conditions before the global financial crisis, he said.

Responding to a listener question, Gundlach said he “pretty much” aligns with a previous recommendation for a 25-25-25-25 portfolio — 25% each stocks, cash, hard assets and bonds — and favors non-U.S. stocks in the equities allocation.

“Right now the mantra for a lot of investors is T-bill and chill,” Gundlach said, adding he doesn’t recommend that, as collateralized loan obligations provide a spread on top of Treasurys.

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