Junk bonds could also be good investments if the economy goes into a recession and the bonds’ prices decline. Even if they default, Gundlach said, and prices fall to 50, 60 or 70 cents on the dollar, investors could make money when the issuing companies reorganize.
In the stock market, Gundlach noted that the Dow Jones Industrial Average has performed relatively well this year. He also expects value to continue to outperform growth.
Most significantly, he thinks global markets could be at an inflection point. Since the financial crisis, U.S. equities, as measured by the S&P 500, have outperformed the rest of the world by about 300%. When the U.S. dollar inevitably reverses its trend, which may be underway, Gundlach says that’s going to change. Over the last two years, he called U.S. and European stocks “virtually tied.”
Since 2011, U.S. stocks have trounced the MSCI Emerging Markets Index by 4.5 times. “That could be reversing,” Gundlach said.