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Fear of Heights in U.S. Stocks, Strong Push for Gold—“New Bond King” Says the Fed Won’t Cut Rates This Year

Jeffrey Gundlach, Chief Investment Officer of DoubleLine Capital, has recently publicly issued his annual asset allocation outlook, urging investors to add more to cash, gold, and all kinds of physical assets in their portfolios. He also warned that U.S. stocks and risk assets are being overshadowed by multiple hidden risks, with the biggest concern being that the Federal Reserve will not only not cut rates, but may even raise them.

Interest Rate Expectations Have Completely Reversed; Rate Cuts This Year Are Now a Pipe Dream?

Over the past year, market optimism about Fed rate cuts has been the core driver behind the continued rise of U.S. stocks and risk assets. At the beginning of the year, mainstream views generally expected that the Fed would complete two to three rate cuts before the end of 2026. Many investors made large allocations to risk assets based on this judgment. But a sudden shift in the geopolitical landscape completely disrupted the cadence of monetary policy. After the outbreak of war in Iran, international oil prices surged sharply, driving up inflation across society as a whole and leaving the Fed with virtually no room to cut rates.

Gundlach said bluntly: “If you buy risk assets heavily purely based on the expectation of two rate cuts, and treat it as a logic with a high degree of certainty, then you’ve completely bet on the wrong direction. The Fed will not carry out any rate cuts this year.”

The veteran short-seller investor—long bullish on inflation and bearish on the dollar—accurately pinpointed the key misconception in the market today, arguing that the logic of trading risk assets by relying on the narrative of rate cuts has completely failed.

Judging by market pricing data, the shift in interest-rate direction is now very clear. According to data from the CME FedWatch Tool, last Friday the market-implied probability of a Fed rate cut within the year was only 12%, down sharply from 21% a month earlier. Meanwhile, the probability of a rate hike within the year rose from a level close to zero in early April to 16% within a month, and market expectations for monetary policy tightening are warming up quickly.

Against the backdrop of shifting rate expectations and stubbornly high inflation pressures, the U.S. stock market has nonetheless moved independently. Major indexes have continued to set fresh historical records recently. Even though the U.S. and Iran have not yet signed a formal peace agreement, market sentiment remains elevated. In Gundlach’s view, the current stock market has completely detached from fundamental support, and the valuation bubble is becoming ever more obvious.

He stated without mincing words: “All I can say is that current market valuations are already at extremely high levels.”

With upside risks to interest rates present, a high-valuation stock market is unlikely to sustain its current strength. Investors who chase performance too aggressively are highly likely to face a one-two punch of both valuation pullbacks and liquidity tightening.

The “Bond King” Releases Its Latest Investment Portfolio Plan—Conservative Allocation as the Core

In response to the current complex market environment, Gundlach updated his standardized investment allocation strategy, clearly specifying target weightings for different types of assets and providing investors with a clear reference for how to position. The overall approach focuses on risk avoidance and capital preservation, with a balanced mix of cash, commodities, gold, and other assets.

The cash allocation stays at 20%. He still recommends that investors allocate one-fifth of their portfolio to cash, continuing the recommended standard from the end of last year. A sufficiently large cash position can preserve room to buy the dip when the market is volatile and effectively mitigate the risk of asset price pullbacks.

Hard assets such as commodities are set at 20%. Gundlach is optimistic about the full-year outlook for commodities. He suggests using a commodities index to allocate to this segment. Over the year, the Global X Bloomberg Commodity Index ETF has already risen 9%, highlighting the sector’s resilience. Notably, he increased the overall allocation to physical assets from last year’s 10%-15% to 20%, underscoring his long-term bullish view on defensive physical assets.

Gold becomes a key target for allocation. As a core hard-asset product category, gold is highly favored by Gundlach. He stated clearly that if the international gold price falls below $3500 per ounce, he will step up and buy heavily. Although he did not provide a specific gold allocation ratio, he previously said that allocating 25% to gold in the portfolio is not excessive.