Bill Ackman isn’t the only bold-faced Wall Street celebrity who believes the U.S. economy is in worse shape than official data suggests.
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Bill Gross, co-founder of fixed-income giant Pacific Investment Management, said in a post on social media platform X on Monday that the U.S. economy is likely to head into recession by the end of the year.
“The carnage at local banks and the recent rise in auto delinquencies to long-term historic highs indicate that the U.S. economy is slowing significantly. We will be in recession in the fourth quarter,” Gross said. said.
Such a result would represent a surprising turnaround, considering the Atlanta Fed’s GDP Now real-time indicator shows the U.S. economy expanded at an annualized rate of 5.4% in the third quarter. Official GDP figures are expected to be released on Thursday, with economists polled by the Wall Street Journal expecting an average annual growth rate of 4.5%.
Many Wall Street economists had expected the U.S. economy to slip into recession early this year. But it continues to expand at a rather steady pace, data shows, with strong performance in construction, consumer spending and other sectors helping to upset expectations.
The U.S. economy grew 2.1% in the second quarter, according to revised data released by the Commerce Department last month. Investors typically only become aware of a recession in hindsight after it is officially declared by the National Bureau of Economic Research.
Citing data from Fitch Ratings, Gross said the rise in auto loan delinquencies is a worrying harbinger of economic pain ahead. bloomberg news The percentage of subprime auto loans that were 60 days or more past due exceeded 6% in September, according to an announcement Friday. The 6.1% figure is the highest rate recorded in the data series since 1994.
As for how investors should deal with this, Gross said he is “seriously considering” investing in the SPDR S&P Regional Bank ETF KRE, a regional bank stock that has fallen significantly this year.,
One popular exchange-traded fund is tracking regional investors down more than 30% year-to-date. He also touted merger arbitrage, a strategy he championed in his recent investment outlook.
He also recommended betting on the U.S. Treasury curve continuing to steepen, potentially breaking out of negative territory for the first time in more than a year. The rise in long-term rates has nearly caught up with short-term rates, with the 10-year bond yield BX:TMUBMUSD10Y on Monday within 30 basis points of the 2-year bond yield BX:TMUBMUSD02Y.
According to Dow Jones Market Data, the 10-year Treasury yield has been below the 2-year Treasury yield for 327 consecutive days. This is the longest consecutive trading day since 444 days, which ended on May 1, 1980.
Gross uses interest rate futures for steepening trades. He expects the curve to return to positive territory by the end of the year as the economic slowdown forces investors to adjust their expectations for when the Federal Reserve will cut interest rates.
“‘Longer, Higher’ was the mantra yesterday,” Gross said.
After a decades-long career on Wall Street, Mr. Gross announced his retirement several years ago after a stint at Janus Capital Group. He joined Janus after controversially leaving Pimco.
Despite this, Gross continues to share his views on the market in posts on X, investment outlook letters posted on his website, and interviews with financial news outlets.
