Leading financial manager Jeffrey Gundlach opined that investors should pay attention to the bond market in addition to the Fed's horn.
"My experience of more than 40 years in finance strongly recommends that investors look at the market's reaction to the Fed's statements and actions," said LP DoubleLine Capital's Chief Investment Officer.
A number of Fed officials have indicated that they expect to raise their policy target currently in the 4.25% to 4.5% range and maintain it for a while. However, the market is still skeptical. There are indications that the Fed will cut rates again before the end of the year due to concerns about the effects of the economic recession.
Treasury yields have declined following recent data showing a moderation in US wage gains and a contraction in the services sector. Far from pricing in the benchmark above 5%, Treasury yields across the curve traded below the Fed's current range, with the 2-year bond yield at 4.25% yesterday.
He also suggested focusing on treasury yields as they have successfully predicted economic downturns in the past. An inverted yield curve always leads to a recession in a relatively short period of time.
Adds Gundlach, bonds are seen as more attractive than equities. He suggests investors should now favor a portfolio that is 60% bonds and 40% equities, and not the other way around.
He personally does not think the Fed will raise interest rates to 5%.
