Buying the S&P 500 seems like a 'pretty lousy trade' right now - and a US recession is looming, billionaire investor Jeffrey Gundlach says

• The "double top" in the S&P 500 makes it seem like a "pretty lousy trade," Jeffrey Gundlach says.
• Stocks could fall if earnings disappoint, and value could outshine growth, the elite investor says.
• Gundlach views a US recession as highly likely, and ballooning government debt as a big problem.

The S&P 500 is in a precarious spot, and all signs point to a looming US recession, Jeffrey Gundlach says.

The billionaire investor and DoubleLine Capital CEO noted in a public webcast on Tuesday that following the benchmark US stock index's 24% rally last year, it now trades around the same level as it did at the start of 2022.

"This looks like a pretty lousy trade location with a double top going on," he said, according to DoubleLine's live blog of his comments on X.

Investopedia describes a double top as an "extremely bearish technical reversal pattern" where an asset hits a high price twice with a decline in between.

Gundlach also flagged that Wall Street expects the S&P 500 companies to grow total operating earnings by a hefty 11% this year.

"If that doesn't come through, it's going to be hard for the S&P 500 to sustain this level," he said, nodding to the fact that a company's stock is typically valued at a multiple to its earnings.

The veteran fund manager also touted value stocks over their growth peers after years of underperformance. He pointed out that the "Magnificent Seven" technology stocks that led the market's charge last year have "gone dead sideways" since July, signaling a shift in momentum.

Gundlach underscored that the US stock market hasn't trounced its international rivals in the past couple of years, suggesting it isn't the "world beater" it once was. Moreover, he warned the dollar would likely weaken in the next recession, weighing on the S&P's performance relative to emerging-market peers.

The bond guru raised the alarm on the US economy too. He said a recession looks highly probable, as the inverted yield curve is now de-inverting, leading economic indicators have been declining for a while, and employers hanging on to workers has caused a "backup" in the unemployment rate that could cause it to "go vertical" once the slowdown strikes.

Gundlach called out excessive public spending as well. It has caused the national debt to balloon, he said, exacerbating the federal government's headache of debt payments eating up more and more of its revenues due to higher interest rates.

"We're going to have a problem here," he said. "This will get much worse when the recession comes."

Gundlach concluded with a gloomy outlook for markets and the economy.

"I think 2024 will be a year of high volatility: starting with declining rates, then recession, then recession response," he said. "DoubleLine is ready and loaded for bear."