Gundlach sees rising yields hitting stocks, trouble in junk bonds and a possible bitcoin bounce

Key Points
  • DoubleLine Capital's Jeff Gundlach predicts higher yields will hurt stocks in a "tug of war."
  • The investor expects the so-called yield curve to steepen in 2019.
  • He discussed a bounce on bitcoin going to $5,000, but said it was only for those with the risk tolerance to do it.
  • "Use the strength we've seen in junk bonds as a gift and get out of them," Gundlach says.
Jeffrey Gundlach
Heidi Gutman | CNBC

Many of DoubleLine Capital CEO Jeffrey Gundlach's predictions in the past year have come true, including the stock market's monster sell-off in December.

In a webcast, the so-called bond king, who manages more than $200 billion, gave his predictions on a variety of asset classes, including stocks, bitcoin and corporate credit.

Higher rates and stocks in "tug of war"

Gundlach said Tuesday that 2019 will continue to be a volatile year. He said he expects higher yields will hurt stocks in a "tug of war."

The stock market will be in a push-pull with rates expectations going forward. Gundlach highlighted the difference between the Federal Reserve's tightening agenda reflected in its dot plot and the bond market's expectations.

Market-implied rate hike odds have fallen after Fed Chair Jerome Powell said Friday that the central bank "will be patient" with monetary policy as it monitors the economy.

Gundlach was spot-on with his call on the massive sell-off at the end of 2018. In mid-December, Gundlach predicted that the S&P 500 would go lower when it had already fallen 11 percent from its intraday all-time high, saying "I'm pretty sure this is a bear market." His call came true a week on Christmas Eve, when the index dipped into bear market territory briefly, tumbling more than 20 percent from its record high on an intraday basis.

The market has since bounced back with the S&P 500 up 2 percent in the new year, driven by the optimism over U.S.-China trade talks.

Steepening yield curve

Gundlach is also expecting the so-called yield curve — the difference between short-term and long-term yields — to steepen in 2019, contrary to conventional wisdom.

Wall Street has been worried about an inverted yield curve, which could mean a recession is on the horizon. Recessions have followed inversions a few months to two years later, several times over many decades. Gundlach noted that the yield curve will flatten but then actually steepen again before a recession actually begins.

The investor went through several charts which show an economic slowdown but do not yet indicate a recession.

Risky bet on bitcoin going to $5,000

In an unlikely call from Gundlach, who previously characterized bitcoin as "the poster child for social mood and market mood," he said the cryptocurrency could gain as much as 25 percent.

"I don't recommend anything with bitcoin, really … but if you really want to speculate, I think it could make it to $5,000. Talk about an easy 25 percent," he said in the webcast, even as he advised to "get the heck out of bitcoin."

Corporate credit trouble ahead

Gundlach also issued warnings about the growing leverage both on a government level and company level. With increasing deterioration in corporate credit, he said investors should look for companies with strong balance sheets and get out of junk bonds.

"Use the strength we've seen in junk bonds as a gift and get out of them. Investors need to go into strong balance sheets ... to survive the zigzag of 2019," Gundlach said.