Jeff Gundlach: I See The S&P 500 Going To 1,600

market correction bearTyler Durden:  In what is now a weekly tradition for the new bond king, overnight DoubleLine’s Jeff Gundlach spoke to Reuters’ Jenn Ablan following his periodic investor conference call, to discuss such things as the Fed’s rate hike, on which he remains understandably skeptical and said the Fed will be “challenged” to raise interest rates this year. 

Specifically he said that there appears to be “some (hawkish) rebellion showing up at the Fed.” This came following the latest statement by Kansas City Fed President and noted hawk, Esther George, who  said on Thursday that the Fed is keeping interest rates too low and risks encouraging companies to take on excessive amounts of debt.

As a reminder, George was the sole dissenter to the April FOMC decision to keep rates at 0.25%, which means other “hawks” have yet to build up the courage to even voice a minority opinion, “hawks” such as Boston Fed’s Eric Rosengren who also yesterday said the economy appears to be strengthening after the sluggish first quarter, giving the green light for the central bank to continue its attempt to normalize interest-rate policy. We doubt he will dissent when the Fed again does nothing next month.

Which is why only the opinion of Yellen, who to Gundlach is “the biggest dove” at the Federal Reserve, matters and why Gundlach believes there is a 50% chance of only one rate hike this year.

More importantly, Gundlach told Reuters that the with the S&P500 rangebound around 2,050 for some time, “it’s tough to get much of a rally off of price-to-earnings this high with earnings falling and the Fed itching to tighten with GDP growth already projected to decline,” he said.

In keeping with his recent skepticism, he said that his forecast on the market remains a gloomy one: “I’m sticking with my ’2 percent upside and 20 downside’ prediction on U.S. stocks…. it’s working, I can see it going to 1,600.”

It is unclear if Gundlach is as, less, or more bearish than fellow billionaire Carl Icahn, whose IEP recently revealed it had a record -149% net short exposure to the market.

Gundlach, a prominent critic of NIRP, also said that negative interest rates are backfiring, most notably in Japan, something which even Kuroda has figured out by now.

Ironically, in a letter to Rep. Brad Sherman, Yellen said on Thursday that while she “would not completely rule out the use of negative interest rates in some future very adverse scenario,” the tool would need a lot more study before it could be used in the United States.

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