Commodity prices need to rally, Gundlach said, because equities markets are more closely correlated with the price of oil.
Unless oil prices return to and sustain levels over $45 a barrel, a lot of companies could fail — causing a contagion that could reach the financial system.
Gundlach didn’t think the recent bounce in oil prices is sustainable.
“The rally has been insignificant in the context of the long-term decline, ”Gundlach said. “It looks like time is not on your side unless oil prices rally above $45. These sectors are bleeding money every day.”
Until oil prices rise, Gundlach recommended that investors avoid junk bonds.
Also, China’s GDP growth, reported at 7 percent, is probably unrealistic or blatantly falsified, says Gundlach, which means estimates for world GDP growth are probably too high.
“The Chinese business activity index hasn’t been above zero since 2013,” Gundlach said. “Chinese exports and imports are both negative year over year. Explain to me how China’s GDP is growing at 7 percent with Chinese business activity growth at a negative since 201 and with negative imports and export year-on-year.”
Fears over a recession, on the other hand, are premature, Gundlach said.
Gundlach cited unemployment data — the last several recessions coincided with the unemployment rate rising higher than its 12-month average, which won’t happen in the near term, said Gundlach.
“A lot of the problems in the credit market and the stock market have nothing to do with the broad economy, but instead with stress on metals and energy,” Gundlach said.