At a webinar sponsored by DoubleLine Capital, CEO Jeffrey Gundlach told the attendees that inflation will dramatically drop in the first six months of next year, reports an article in Financial Advisor. However, his co-panelist on the webinar, Felix Zulauf of Zulauf Consulting, warned that after that drop off inflation will rise again in 2024, perhaps even higher than this year. He predicts that inflation will come to a head in 2025 and will shake the global economy and markets around the world to their core.
Gundlach also forecast a recession next year, an expectation that Zulauf agreed with. After the steep rate hikes and severe tightening by central banks across the globe, causing liquidity to leak out of the bond market, a recession is “almost inevitable.” In response, he believes the Fed will likely reverse course and slash rates in the first half of 2023. Meanwhile, Zulauf told the audience that next year’s recession will be global, but he didn’t predict how long it will stretch on or how deep it will go. But both Gundlach and Zulauf agreed that the market volatility on next year’s horizon could provide opportunities to investors, though Gundlach warned that it would be important to proceed with caution. While a steep decline in corporate earnings could be likely in 2023—Zulauf forecast S&P 500 companies to fall 20% to 25%—commodity prices will probably go up. That would push Zulauf away from growth stocks and towards commodities equities, while Gundlach was “very negative on bonds,” according to the article.
Zulauf also brought up China’s strengthening influence, a worrisome trend as more and more countries do their primary trading with China than the U.S. That conflict will “intensify and will impact the microeconomic environment,” Zulauf said, and will also create more disruptions to the supply chain. But when Zulauf questioned Gundlach on whether or not he would buy Chinese assets, Gundlach was unequivocal in his answer. “I think it’s complete folly for a U.S. citizen to buy Chinese assets at this time,” he said.