"Bond King" Issues New Warning: No Rate Cuts This Year; Cash and Gold Are King
While global equity markets continue their feverish rally, the "Bond King" is issuing a stark warning to those diving into risk assets.
Jeffrey Gundlach, the "Bond King" and Chief Investment Officer of DoubleLine Capital, stated in an interview this week that several major risks are looming over stocks and other risk assets—most notably the risk that the Federal Reserve may hike rates rather than cut them.
Consequently, he advises investors to increase their allocations to cash, gold, and other "real assets" in their portfolios this year.
Are Rate Cuts Off the Table for 2026?
Gundlach has long maintained a bearish stance on risk markets, frequently warning of accelerating global inflation and a depreciating U.S. dollar.
In his latest interview, he specifically pointed out that while the market expected two to three rate cuts by the end of 2026 at the start of the year, hopes for any cuts this year may have been completely extinguished.
"If you are buying risk assets solely because you believe the Fed might cut rates twice this year—if that is your conviction—then you have chosen the wrong direction again. We will not see a rate cut this year," Gundlach remarked.
Expectations for rate cuts were a primary driver of the U.S. stock market rally over the past year. However, as the war with Iran triggered a surge in oil prices and fueled fears of heightened inflation, those expectations have largely evaporated.
According to the CME FedWatch Tool, as of this Friday, the market's probability for a Fed rate cut within this year has dropped to just 12%, down from approximately 21% a month ago. Meanwhile, the probability of a rate hike this year has risen to 16%, up from nearly zero a month ago.
"Extremely Overvalued" Markets
Gundlach noted that given the risk of rising interest rates, equity assets appear clearly overpriced. Despite the absence of a formal peace agreement between the U.S. and Iran, major U.S. indices have climbed to new highs in recent weeks.
Gundlach stated bluntly, "I feel the market has become very, very overvalued."
He outlined his recommended ideal portfolio allocation:
Cash (20% Allocation): Gundlach maintains his support for a 20% cash position, consistent with the advice he provided at the end of last year.
Commodities (20% Allocation): Noting the sector's strong performance over the past year, Gundlach suggested that commodities may continue to benefit from the Iran war, energy shortages, inflation risks, and global supply chain restructuring. He recommends dedicating 20% of a portfolio to commodities, an increase from his previous suggestion of 10%–15%.
Gold: While Gundlach did not provide a specific percentage for gold, he has previously stated that an allocation as high as 25% is not "excessive." He added that he would "buy with both hands" if gold prices were to dip below $3,500 per ounce.