DoubleLine CEO Jeffrey Gundlach believes the stock market can sustain its record levels so long as the unprecedented stimulus programs to support the economy from the pandemic remain in place. "I think the whole question for investors is centered around what's going to happen in Washington, D.C. and certainly state houses ... regarding how long this free money stimulus is going to go on," Gundlach said Thursday on CNBC's " Halftime Report ." "As long as it goes on, I think the stock market can stay at nosebleed levels as it has been and continue to grind higher." The so-called bond king also acknowledged the role that the Federal Reserve played in lifting equities with its open-ended quantitative easing and near-zero interest rates. "The Fed continues with their bond buying and continues to press interest rates and that's been supporting the stock market," Gundlach said. The money manager said he altered his portfolio a few months ago to increase his stock holdings and reduce his cash position. The S & P 500 has climbed about 16% in 2021 to record highs on the back of the economic comeback, shaking off fears of inflation and slowing growth. However, Gundlach said the bond market is telling a different story, believing the Fed will eventually pull away its easy money policy in the face of rising price pressures. "The bond market is thinking one move ahead in the chess game that the Fed may actually have to start doing something about seriously reducing these bond buying programs and maybe even, God forbid, start raising short-term interest rates," Gundlach said. In reaction to recent hot inflation readings, long-term Treasury yields have been falling while their short-term counterparts have been rising. The 10-year yield, which is more tied to the economic growth, fell as low as 1.299% on Thursday. The 2-year yield, which is the most sensitive to the Fed policy, rose as high as 0.233% after staying at the 0.1% range for the past three months. Federal Reserve Chairman Jerome Powell is sticking with his belief that the current surge in inflation is temporary and will be offset as conditions return to normal. Powell said Wednesday that the Fed's benchmark of "substantial further progress" toward full employment and stable prices remains "a ways off." "It's getting difficult for the Fed to talk about this inflation situation as being temporary, or transitory as they like to say," Gundlach said, adding that recent inflation data reminds him of the 1970s, when extraordinary inflation led to nearly 20% interest rates.
Adam Jeffery | CNBC