Jeffrey Gundlach dubs stock market ‘least healthy' he's seen in his career

Jeffrey Gundlach, DoubleLine Capital’s CEO, warned that the current U.S. equity rally is “among the least healthy” he’s seen, calling AI-driven momentum speculative, valuations stretched and advising investors to hold at least 20% in cash to brace for a potential downturn around 2026. He flagged the $1.7 trillion private credit market as the next systemic risk—citing deteriorating underwriting, recent failures like Tricolor and First Brands Group, and the mismatch of marketing illiquid private credit to retail investors—likening the situation to 2006 subprime packaging. Gundlach also trimmed his recommended gold allocation to 15% from 25%, noted that shorting junk has been unrewarding, and warned that tariffs and sticky inflation could keep price pressures elevated, supporting a broadly defensive portfolio stance.

Analysis

Jeffrey Gundlach described the current U.S. equity rally as "among the least healthy" he has seen despite the S&P 500 trading more than 30% above its year‑to‑date low in early April; he identified AI-related and data-center names as areas of speculative "excess" and called many assets "extremely overpriced," warning of an AI-driven bubble that could burst and pull markets down in 2026. He explicitly recommends holding at least 20% of portfolios in cash to brace for a potential downturn.

Gundlach flagged the $1.7 trillion private credit market as the next systemic risk, citing deteriorating underwriting and recent failures such as Tricolor and First Brands Group as early stress signs; he likened current practices to 2006 subprime packaging and criticized the push to market illiquid private credit funds to retail investors as a "perfect mismatch." Those comments imply heightened liquidity and credit‑quality risk for credit-sensitive allocations.

On positioning, Gundlach trimmed his gold recommendation from 25% to 15% while continuing to favor bullion, noted that shorting junk has not worked, and emphasized tariff-driven inflation risk that could keep price pressures elevated. The supplied signals show a strongly negative sentiment score (-0.7) with negative per-ticker sentiment for SPY and JNK and positive readings for gold ETFs, reinforcing a defensive, risk‑off interpretation of his views.

Key Decisions for Investors

• Increase cash holdings toward at least 20% to preserve optionality and liquidity heading into 2026, as Gundlach recommends
• Trim concentrated exposure to AI/momentum tech and reduce equity beta or add targeted downside protection on broad equity exposure (e.g., SPY) given stretched valuations
• Pause or materially de-risk private credit commitments marketed to retail investors, intensify underwriting reviews and monitor failures such as Tricolor and First Brands Group as early warning indicators
• Favor liquid inflation hedges such as allocated gold exposure (consistent with Gundlach's trimmed 15% preference) rather than relying on shorting junk, and monitor tariff-driven inflation data that could change duration and credit spread risk