Gundlach Sees Inflation Above 2% Next Year After Hitting Trough

Inflation will likely trough in the next several months and may rise above 2% next year, according to Jeffrey Gundlach.

It may range from 2.25% to 2.4% in 2021, Gundlach said Tuesday on a webcast for his flagship DoubleLine Total Return Bond Fund.

Gundlach Sees Inflation Above 2% Next Year After Hitting Trough

Gundlach’s view of sustained higher inflation runs counter to consensus. Inflation may temporarily rise above 2% in the second quarter of 2021 before retreating again in the following quarters, according to a Bloomberg survey of 51 economists.

While the U.S. economy hasn’t stayed above the target set by the Federal Reserve, there’s an expectation among market participants that widespread vaccine development and distribution will unleash spending and generate growth at a speedy pace.

Among his other comments:

  • The underperformance of small caps might finally be ending, he said, pointing to the Russell 2000 relative to S&P 500. The move has been “pretty powerful already,” he said.
  • The copper-gold ratio suggests that 10-year Treasury yields should be higher. “Fundamentals do not support today’s Treasury levels,” he said.
  • On the FAANGs and Microsoft Corp., he said the stocks appear to be breaking down as the market’s “generals.”
  • BBB spreads have tightened relative to Treasuries, which isn’t very different from 30-year Treasuries. Investors aren’t getting very much difference in return between the two.
  • He’s neutral on gold but “if you forced me to buy it” he said he would at current prices.

Gundlach’s Total Return fund, with about $52 billion in assets, is up 3.7% this year, better than almost half of its peers, according to data compiled by Bloomberg. Its five-year annualized return of 3.4% ranks is better than three-quarters of its rivals.

Los Angeles-based DoubleLine Capital managed more than $141 billion as of Sept. 30. Gundlach, 61, is chief executive of the firm and chief investment officer.

©2020 Bloomberg L.P.

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