DoubleLine Capital co-founder Jeffrey Gundlach, widely followed for his investment calls, warned after a weak non-farm payrolls report that the U.S. equity market as well as other risk markets including high-yield "junk" bonds face another round of selling pressure.
"The reason the markets aren't going lower is people are holding and hoping," Gundlach told Reuters in a telephone interview. "The market bottoms out when people are selling and sold out - not when they are holding and hoping. I don't think you've seen real selling in risk assets broadly. Markets need buying to go up and they need volume to go up. They can fall just on gravity."
Investors piled into government bonds on Friday, sending the 10-year Treasury yield below 2 percent, after the Labor Department said employers hired 142,000 workers last month, far below the 203,000 forecasters had expected, and August figures were revised sharply lower to show only 136,000 jobs added.
Gundlach said junk bonds are vulnerable: "I'll think about buying when it stops going down every single day."
"People are acting like everything is great. Junk bonds are at a four-year low. Emerging markets are at a six-year low and commodities are at a multi-year low - same level as in 1995 ... GDP is not growing at a nominal basis."
Gundlach, whose Los Angeles-based DoubleLine was overseeing $81 billion in assets under management as of the end of the third quarter, said: "Clearly what's happening is people are waking up to the idea that global growth is not what they thought it was."
He added: "There's going to be another wave down in risk assets and it's happening globally."
Even International Monetary Fund Managing Director Christine Lagarde affirmed this, Gundlach said: "You talk about an important moment - when somebody who is traditionally a cheerleader for a bright future says, 'I have to downgrade my global growth forecast,' as Lagarde did."
Gundlach noted Brazil's economy which is expected to contract in 2016 and China's slowing growth.
Gundlach, who has maintained since May that the Federal Reserve will not raise rates at all this year, said the environment feels similar to 2007's, when a financial crisis was brewing.
"People want them (Fed officials) to increase because they think it is a signal that everything is secretly OK. If the Fed raises rates, that means everything is OK. But it is the other way around. If the Fed raises rates against this backdrop, it just makes things worse."
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