Jeffrey Gundlach says the U.S. equity market can't keep on rising while global equity markets have gone in the opposite direction.
Gundlach, a one of the most successful fixed income investors remarked that strangely, the S&P 500 has been outperforming global equity markets, breaking away since the summer months, until now.
"I said [before] ... if the global stock [market] is going to take out the low and put in a new low, something bad must be happening. I don't think the U.S. can hold in there," he told CNBC Thursday. "Well what happened as rates broke to the upside ... the global stock market ex-U.S. did take a new leg down and did go to a 12-month low. And it's interesting the S&P 500 did what I said. ... That is join the global stock market on the way down."
The day before, the Dow Jones Industial Average suffered an 832 point drop and the S&P 500 pulled back 3.3%, as investors reacted to the news and concern of the negative effects rising rates could pose.
Investors got spooked one day after yields on 10-year treasury notes traded above 3.25 percent, the highest they've been since 2011.
As of yesterday the S&P 500 had a net gain of 4 percent in contrast to the iShares MSCI AWCI ex U.S. ETF, which represents the performance of world markets ex-USA equity index, is down 10 percent in USD terms.
Where fixed income is concerned, Gundlach said it would be no surprise to him if the bond market only calmed down once Treasury yields rise to multiyear highs.
"If you look at the charts and you look at the way the market's behaving and you think about the trends that are underneath the bond market, it wouldn't be surprising at all to see the 30-year [yield] go to 4 percent before this move of the breakout above 3.25 percent is over," he said on CNBC.
He also added that, "The curve should probably steepen so maybe the 10-year Treasury makes it to 3.5 percent or 3.6 percent during that move,"
As of today's, 10 year treasury yields were are 3.17 percent, having fallen from 3.2 earlier this week. 30 year treasury yields were sitting at 3.35 percent, as he spoke with CNBC.
Yields: On the march! 10’s above 3% again, this time without financial media concern. Watch 3.25% on 30’s. Two closes above = game changer.
— Jeffrey Gundlach (@TruthGundlach) September 19, 2018
Back in September, Gundlach CEO of Doubleline tweeted, "Yields: On the march! 10's above 3% again, this time without financial media concern. Watch 3.25% on 30's. Two closes above = game changer."
Both 10-year and 30-year rates have soared in recent weeks to above the multi-year highs Gundlach referred to as a "Game changer." As a result of the Fed's move last week, Fed Chair Powell's hawkish comments, and strong economic data, which support the inflationary thesis, all fuelled concern that interest rates and yields would continue rising more rapidly.