Gundlach: Interest Rates & VIX Won't Stay Down

June 16, 2017

Low-Volatility Days Numbered

Gundlach had a lot to say about stocks as well. He continued to recommend that "investors peel off a piece of their S&P 500 exposure and move it to Europe or even better, emerging markets." He explained that "based upon the policies in place in Japan and Europe juxtaposed to the policies of tightening in the U.S., there's still a lot of long-term legs to diversifying away from U.S. stock investments."

Another reason to be wary of U.S. stocks, in Gundlach's view, is because volatility is likely to rise. He expects that, sometime this summer, there will be a leg up in interest rates, which will be the catalyst for softer equity prices.

"Low volatility is almost necessarily followed by high volatility," he noted. Moreover, there is a massive amount of money that is betting against the CBOE Volatility Index (VIX), as evidenced by the exploding share count and huge short positions in the iPath S&P 500 VIX Short-Term Futures ETN (VXX).

"The trade is crowded," Gundlach warned. "The days of low volatility are numbered and you probably won't see it last until year-end."

He advises that if you're an investor, sit through the seasonally weak period that he expects; and if you're a speculator, you should be raising cash today.

Contact Sumit Roy at [email protected].

 

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