Gundlach: Rate hike soon 'really dicey' for stocks

Gundlach: Clear China is not growing
Gundlach: Clear China is not growing   

Risk assets have a "poor" trajectory ahead, and a Federal Reserve rate hike next week would prove "really dicey" for markets, DoubleLine Capital's Jeffrey Gundlach said Tuesday.

Gundlach argued that the S&P 500, which closed Tuesday around 1,980, has 2 percent of upside compared with 20 percent of downside. He said if the Fed continues on its indicated tightening path, the market "seems intent on humiliating" the U.S. central bank.

"I would think that it would be really dicey to raise rates again even though some of the indicators have marginally improved," Gundlach said in a webcast titled "Connect the Dots."

Jeffrey Gundlach
Adam Jeffery | CNBC
Jeffrey Gundlach

The comments from Gundlach, the firm's CEO and chief investment officer, came ahead of the Fed's two-day meeting and policy decision next week. Gundlach, who has previously criticized the Fed's tightening plans, said he believes the central bank should push back rate hikes despite recent positive data points for the labor market and inflation. The Fed previously indicated it could raise rates four times this year after hiking in December for the first time in nine years.

Gundlach joked that sentiment toward risk markets reflects the attitude toward Sen. Ted Cruz of Texas in the Republican presidential race, saying "both of them are thought to be stronger than they really are."

Whether the Fed hikes, inflation will prove crucial to stocks moving forward, Gundlach said. He said the market "wants inflation," particularly in the commodities space.

"We need commodity prices to rally significantly further," noting that U.S. oil prices would have a difficult time climbing from $38 per barrel, where they started Tuesday after a recent surge. Crude settled nearly 4 percent lower Tuesday.

He believes the current environment could drive gold to $1,400 an ounce, up from about $1,260 an ounce Tuesday. However, the metal may see a brief pullback after rallying nearly 20 percent this year amid volatility.

While he said stocks will likely fall, Gundlach stressed that he does not believe the United States will fall into recession. Predictions of a U.S. economic pullback mounted earlier this year amid global weakness and market volatility, but have waned in recent weeks as markets and data stabilized.

"I don't think the base case in the U.S. is recession in the near term," he said.