In a recent interview, Jeffrey Gundlach, CEO of DoubleLine Capital, highlighted a phenomenon in the bond market that he believes is signaling an imminent recession. Gundlach pointed out that the spread between the 2-year and 10-year Treasury yields has tightened to 35 basis points, down from 108 basis points just a few months ago. This “de-inverting” of the yield curve, which historically has been a reliable recession predictor, could serve as a warning sign for an economic downturn. Gundlach urged investors to be on “recession warning” and emphasized the importance of closely monitoring the unemployment rate.
The 60/40 portfolio, which consists of 60% equities and 40% fixed income, experienced a decline in both stocks and bonds on Tuesday, resulting in a 1.14% drop in the iShares Core Growth Allocation ETF (AOR). The portfolio has faced challenges throughout the year, with a total return of -15.6% in 2022 due to sharp declines in both asset classes. Despite this, the 60/40 model is designed to provide investors with diversification and mitigate the volatility seen in stocks. While rough market days can impact the portfolio, its long-term prospects remain intact.
Cal-Maine Foods, an egg distributor, saw its shares fall nearly 12% after reporting weaker-than-expected financial results. The company’s earnings per share for the fiscal first quarter were 2 cents, significantly below the consensus estimate of 33 cents. Cal-Maine also missed revenue expectations, citing “dynamic” market conditions and the normalization of egg prices. This disappointing report reflects the challenges faced by the company in a changing market environment.
Overall, these developments in the bond market, the 60/40 portfolio, and the performance of individual companies like Cal-Maine Foods indicate potential economic headwinds. Investors are advised to pay close attention to these warning signs and adjust their strategies accordingly.
