Economic guru Jeffrey Gundlach tells savvy investors to keep an eye on the controversial digital currency bitcoin if they want signs of where the overall stock market is headed.
"Strangely, bitcoin seems to be the poster child for social mood and market mood," the founder of DoubleLine Capital, recently told CNBC's "Halftime Report."
"If stocks are going to take another tumble, I think it would be preceded by a bitcoin decline," he said.
"We had a vertical rise from Sept. 7 which was led and epitomized by bitcoin. Bitcoin started at about $4,500 and went up to about $20,000 or so," he said.
"Bitcoin peaked out in mid-December and it crashed. That sort of presaged the volatility in the stock market," he said. "If stocks are going to take another tumble, I think it would be preceded by a bitcoin decline," he predicted.
As far as active investment advice to pounce upn right now, "I still like commodities," he told CNBC.
"I think [in the] late cycle commodities always rally."
"Most investors are underweighted or completely not invested in commodities because they've been so quiet, so sleepy," he said. "Commodities is my choice investment for investors to get diversified at low prices now."
Bitcoin climbed back to $10,000 as the purchase of one of the bigger digital token exchanges by a more established financial services company bolstered expectations for wider mainstream acceptance of cryptocurrencies, Bloomberg reported.
Circle Internet Financial Ltd., a closely held firm backed by Goldman Sachs Group Inc., said it acquired Poloniex Inc., the 14th largest digital-token exchange. Terms of the agreement weren’t disclosed. Fortune magazine reported earlier that the deal was for about $400 million, citing an unnamed person familiar with the transaction.
Bitcoin gained as much as 4.3 percent to $10,346, after dropping below the key level last week. Bitcoin has hovered around the $10,000 mark for most of the year, or about half the record hit in mid-December.
“It has a lot to do with this announcement of Circle buying Poloniex as it’s providing some support for the exchange industry,” said Fundstrat’s Tom Lee, who forecasts Bitcoin will end the year at $25,000. “Breaking a big round number is definitely a positive, but from a fundamental perspective, it’s highlighting that developments in crypto this year have actually been positive.”
Meanwhile, other experts say the stock market's fate is linked to the bond market.
If the 10-year U.S. Treasury yield hits 4.5 percent by year-end, the economy would probably muddle through -- stocks, not so much, according to Goldman Sachs Group Inc., Bloomberg explained.
Goldman’s base-case scenario calls for a 10-year yield of 3.25 percent by the end of 2018, though a “stress test” out to 4.5 percent indicates such a move would cause stocks to tumble, economist Daan Struyven wrote in a note Saturday. He also said the economy would probably suffer a sharp slowdown but not a recession.
“A rise in rates to 4.5 percent by year-end would cause a 20 percent to 25 percent decline in equity prices,” the note said.
While a recent drop in stocks may have been fueled by concerns tied to the 10-year yield approaching 3 percent, many strategists have said they felt equities could continue to rise until reaching 3.5 percent or 4 percent.
(Newsmax wire services contributed to this report).
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