Wall Street "bond king" Jeff Gundlach believes Sen. Bernie Sanders and his surging Democratic primary campaign is to blame for the stock market's recent tumble.
Several economists and analysts say otherwise, pegging the spike in volatility to heightened coronavirus concerns.
The DoubleLine Capital chief executive told CNBC in an email that the progressive candidate's frontrunner status is spooking investors and sending the market into a downward spiral. Sanders is enjoying a hefty lead over other candidates after winning the vast majority of delegates in the Nevada caucus and tying with former South Bend Mayor Pete Buttigieg for delegates in New Hampshire. The senator from Vermont's ascension in the primary race is playing a key role in pushing markets lower, Gundlach claimed.
"If this stock market reversal is due exclusively to the virus, then why is United Healthcare down far more than [the S&P 500]?" Gundlach asked CNBC's Scott Wapner in an email. "Why is healthcare as a sector broadly not outperforming?" Answer to these questions: The market is digesting a better than 50% chance of Bernie getting the nomination."
The comment arrives as US stocks turn negative after a brief morning recovery on Wednesday. The move matches the dips seen in global markets earlier in the day and extends a gloomy week for investors exposed to risk assets. The S&P 500 and Dow Jones Industrial Average both wiped out their year-to-date gains on Tuesday after falling the most since 2018 the day prior. The 10-year Treasury bond sank to a fresh record-low on Wednesday as coronavirus worries drove investors to traditionally defensive assets.
Numerous experts have warned the outbreak is more serious than recent stock prices reflected. Equities stood at record highs just weeks ago despite frequent updates showing the epidemic spreading further around the world. Should the virus turn into a global pandemic, Oxford Economics projects the fallout will knock 1.3% — about $1.1 trillion — from world economic growth in 2020.
The outbreak is pushing the world economy "to the brink of a global recession" and investors should start taking defensive positions to protect their wealth, Nigel Green, CEO of financial services firm deVere Group, said Wednesday.
The coronavirus is responsible for more than 2,760 deaths and has infected more than 81,000 as of Wednesday morning. Though the epidemic is concentrated in China, new deaths in Iran, Italy, and South Korea ramped up fears of the virus further damaging the global economy. Brazil confirmed its first coronavirus case on Wednesday, marking the first case in South America.
Gundlach also decried the prolonged move of investment capital into passive funds. The billionaire suggested Monday and Tuesday's drops showed "the dark side of momentum investing (which is exactly what defines 'passive')," adding that a poorly performing market creates a dangerous cycle for passively managed investments.
"The market goes down in a knee jerk way on the Bernie rise, but the market going down makes Bernie's polls go up on his rejection of a market based economy. Which makes the market go down another leg," Gundlach wrote. "Rinse and repeat."
This article originally appeared on Business Insider.
