The S&P 500 is down over 8% from its all-time highs. Wall Street “Bond King” Jeffrey Gundlach is looking at Democratic presidential candidate Bernie Sanders for the market’s nauseating plunge.
The DoubleLine Capital chief executive doesn’t see the coronavirus as the pin that’s bursting the stock market bubble. His assessment shows that he’s totally clueless about how the stock market works.
Gundlach is seriously overestimating the impact of Democratic hopeful Bernie Sanders on the stock market. As per CNBC, the bond king attributes the stock market slump to the rise of Sanders in the polls:
The market goes down in a knee jerk way on the Bernie rise, but the market going down makes Bernie’s polls go up on his rejection of a market based economy. Which makes the market go down another leg. Rinse and repeat.
Gundlach takes it a step further by underestimating the effects of coronavirus on the stock market. He says that if the virus is behind the selloff then,
why is healthcare as a sector broadly not outperforming?
Overall, Gundlach’s thesis is that the stock market is currently pricing in the possibility of a Bernie Sanders presidency. But the presidential elections are over eight months away. Markets do not make historical plunges over something that may or may not happen far into the future. I’m afraid that Gundlach is missing the big picture.
The coronavirus is the catalyst of the current market rout. Investors are now beginning to see how the virus can seriously impact company revenues by crippling the supply chain.
For instance, Apple’s iPhone sales in China are expected to plunge by up to 50% in February and March compared to the same time period last year. Microsoft issued a warning that the supply chain for its personal computing business is not returning to the pace that the company anticipated. The tech giant estimates that it may not meet its Q3 personal computing projections.
We may just be seeing the tip of the iceberg. I expect more companies to release revised revenue guidelines in the coming months as coronavirus hits both sides of supply and demand.
Supply chain disruptions are not limited to China and the United States. Data from Arbor Science suggest people are afraid of a worldwide supply chain shock.
Companies are so over-leveraged and rely on just-in-time inventory. A supply disruption really impacts sales. Without sales companies have a hard time servicing their debts, and without jobs workers can’t pay theirs either.
Without debt fueling more consumption, the house of cards tends to fall fast. This is the real reason why investors are rushing to get out of the stock market. They see what’s in front of them and not something that may or may not happen eight months from now as Gundlach suggests.
The opinions expressed in this article do not necessarily reflect the views of CCN.com. The above should not be considered trading advice from CCN.com.
This article was edited by Sam Bourgi.