When one of my most respected analysts speaks, I pay attention. On Tuesday DoubleLine’s Jeffrey Gundlach said that emerging market Stocks were poised to dramatically outperform U.S. stocks over the long term. Part of the reason he expected the two regions to diverge was that domestic stocks had beaten other areas over the last decade and during the recent pandemic but now that was time to reverse.
Gundlach also said they foresee “rough waters” for the fragile U.S. economy as the Federal Reserve begins to taper its balance sheet. “We could see tremendous under-performance of U.S. stocks,” he said. “We do not own emerging markets: we think it’s too early,” Gundlach said. But he added that they could be “the next big trade.”
Gundlach noted that after the dot-com bubble burst in 2000, emerging market stocks outperformed U.S. stocks for most of the next decade. Indeed, their ability to trounce U.S. equities for an extended period was “remarkable.”
Gundlach was asked whether the Fed would unleash its arsenal of monetary medicine if the S&P 500 were to drop 20%. That’s been the case in the past and he said he “wouldn’t bet against it.” In the fourth quarter of 2018, the fed funds rate reached 3.0%, and economic activity stalled while stocks fell 19%. “We’re likely to see more uncertainty and stress,” he predicted.
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While tech companies have been the drivers of the pandemic stock market rally, the coming years will see a new brand of tech defined. Supportive government policies and private sector innovation are helping many sectors of the renewable economy become more affordable…leading to investment opportunities.
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