• Fed has halted the rate hike cycle
• Jeffrey Gundlach does not expect further rate hikes in 2023
• 20-60-20 portfolio recommended
At its most recent meeting, the US Federal Reserve decided to take a pause on interest rates and to leave the base rate unchanged for the time being. After ten interest rate hikes in a row, the monetary watchdogs are now keeping their feet still for the first time. At the same time, however, the interest rate projections were raised: The Fed is therefore assuming that the interest rate pause will not last and – contrary to the hopes of many market participants – a reduction in the key interest rate is currently not planned. Instead, Fed members expect an average of two more rate hikes this year.
Jeffrey Gundlach assesses the situation differently
In an interview with CNBC, bond expert Jeffrey Gundlach, the founder of DoubleLine Capital, referred to the latest developments in monetary policy. He does not believe that the announced monetary tightening will actually materialize. “It was definitely restrictive in rhetoric, but not restrictive in action,” was Gundlach’s comment on the interest rate break.
In his view, there will be no further interest rate hikes, even if the US Federal Reserve has prepared the markets for them. According to the expert, the monetary watchdogs may have actually overstated their monetary policy.
He considers it unlikely that the current economic situation justifies further tightening: “There was growth in jobs, but there was a significant drop in the average working hours,” said Gundlach in the interview, in which he also referred to the most recent value for the Purchasing managers’ index for the manufacturing sector referred, which was also “massively recessive”.
Gundlach sees mania on the stock market
In line with this assessment, Gundlach remains bond-based in its portfolio. The US Federal Reserve’s decision did not change the plan for a bond-heavy portfolio with a focus on interest income.
The bond market is currently “very cheap” relative to the stock market, offering solid yields and upside potential with limited downside risk, the bond expert told CNBC’s Closing Bell. “I think this is the time when you should have a barbell portfolio with some risky assets, especially in bonds.”
Specifically, he advises investors to have a portfolio based on the 20-60-20 rule: 20 percent in stocks, 60 percent in bonds and 20 percent in tangible assets such as gold. The market analyst had previously advised a 30-60-20 spread, so his confidence in the stock market has fallen further. Gundlach calculates that anyone who aligns their portfolio accordingly can achieve a return of five percent in a “very high-quality bond portfolio” without default risk and eight to ten percent in a “well-positioned, actively managed bond portfolio”. He is therefore sticking to his plan to systematically upgrade the bond portfolio, in view of the recent stock market recovery it is the “perfect time”.
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