tl;dr
Billionaire Jeffrey Gundlach, CEO of DoubleLine Capital, believes the stock market is struggling due to a significant drain on the government's finances. He notes that despite the Federal Reserve's rate cuts, the S&P 500 has not seen significant gains. Gundlach attributes this to the government's ma...
Billionaire Jeffrey Gundlach, CEO of DoubleLine Capital, has warned about the struggles in the stock market due to the significant drain on the government's finances. Despite the Federal Reserve's rate cuts, the S&P 500 has not seen substantial gains, indicating a deeper issue in the stock market. Gundlach attributes this to the government's massive interest expense, which he claims is over $3 billion per day, referring to the interest paid by the US government on its $36.22 trillion national debt. He predicts that this issue will continue to hinder the stock market in the future.
Gundlach's concerns are highlighted by the unusual lack of rally in Treasury bonds and stocks, despite the Fed's rate cuts. He notes that since the Fed began cutting rates in September, bond yields have remained up, and the stock market has shown minimal upward movement. This diverges from the typical pattern where risk assets like equities experience upward surges following Fed interest rate reductions. The bearish price action of the S&P500, dropping to a level last seen in September of the previous year, further signifies the underlying issue troubling the stock market.
The interest expense, which amounts to over $3 billion a day on the Treasury debt, has been a significant concern. The US government paid $882 billion in interest costs during the 2024 fiscal year, according to data from the Treasury Department. This burden continues to weigh on the stock market, as observed by Gundlach, and is expected to persist as a significant theme in the future.