Gundlach: U.S. Stock Valuations 'Just Awful'

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The DoubleLine CEO also voiced caution on artificial intelligence’s parallels to the dot-com bubble.

Jeffrey Gundlach says he would avoid U.S. stock index funds now, as equities are too costly, and expressed caution on artificial intelligence.

“I think equities are really expensive in the United States. They’re right back to where they were at the end of 2021, narrow as all hell, late cycle of the economy,” Gundlach, DoubleLine Capital’s founder and CEO, said in a recent webcast interview with David Rosenberg, the founder and president of Rosenberg Research.

“I would not buy an index fund in equities for sure, because you’re basically buying seven stocks and they’re very expensive. Making a lot of money, some of them, I acknowledge that, but they look expensive,” Gundlach said.

The “Magnificent Seven” tech stocks driving the S&P 500 have been fueled by investors’ eagerness to bet on AI, but Gundlach warned that the technology bears similarities to the dot-com bubble.

“AI is not even a thing. It’s just mega mega computing power. That’s all it is,” he said. “It’s just computing power to the nth degree. And it’s kind of dot-comish where if you mention AI on your earnings call you get a bump.

“It’s sort of like that. But you know, a lot of companies got taken out that were dot-com-oriented and they deserved to get taken out. And a lot of companies that are AI-attached to, for some reason that’s maybe even peripheral, they’re not going to do well either,” Gundlach said.

He noted that Amazon initially did well then “tanked like a rock in the early ‘00s. But if you hang out, I’m sure there’s some winners in AI.”

Gundlach called himself “allergic to momentum investing, and so I just don’t want anything to do with it.”