Gundlach's Forecast for 2015
Despite a fragile economic recovery – now threatened by falling oil prices – and the likelihood that the Fed will raise short-term rates, the prospects for the U.S. bond market in 2015 are good, according to Jeffrey Gundlach.
“The US is a good place to invest based upon the economic fundamentals being better than other countries,” he said.
Gundlach, the founder and chief investment officer of Los Angeles-based Doubleline Capital, delivered his 2015 forecast in a conference call on January 13th.
His talk was titled “V,” to represent the pattern that bond prices formed last year by peaking in June. The slides from his presentation are available here.
Gundlach’s 2014 forecast, made a year ago, proved reasonably accurate. He correctly predicted the strong performance of the overall bond market (U.S. 10-year yields declined 86 basis points), the flattening of the yield curve and the poor performance of high-yield bonds. He accurately predicted that the Fed would end its quantitative easing (QE) program. He was too bearish on the U.S. equity markets, which returned 13.5% in 2014. Gundlach also correctly predicted the strong performance of the U.S. dollar.
I’ll turn to Gundlach’s 2015 forecast for bond market and other asset classes, but let’s look at his projections for the U.S. economy.
Will oil thwart the U.S. recovery?
Trends in employment dominate the positive case for U.S. economic growth. Unemployment has declined to the level it was in 2005, according to Gundlach. Long-term unemployment – those out of work for 27 weeks or more – has “really improved,” he said, and the 14-week rate is in a “healthy condition.”
Some of the jobs are not well-paying. Gundlach said that surveys have shown that businesses are more concerned about the quality of applicants in the labor market than they are about prospects for increased revenue. For that reason, he is skeptical of wage inflation. On a positive note, disability payments have leveled off, as has food stamp usage, he said.
But, he predicts, the decline in oil prices will exert further pressure on wages and on the overall economy.