Bond king Jeffrey Gundlach says the surge in retail investor activity is ‘downright terrifying’

Jeffrey Gundlach speaking at the 2019 SOHN Conference in New York on May 6th, 2019.

Adam Jeffery | CNBC

DoubleLine Capital CEO Jeffrey Gundlach said the massive buying frenzy among retail investors this year is an ominous sign for the stock market.

“Of course retail investor activity is downright terrifying,” Gundlach said during an investor webcast on Tuesday, pointing to the surge in daily average trade and trade per account on online brokers. “We just see how much trading is going on in retail,” he said.

Gundlach alluded to some of the blame for the retail trading boom falling in the lap of the federal government’s unprecendented stimulus. The funds aided many struggling Americans, but for others, the stimulus money reportedly made its way back into the stock market. Gundlach likened the newbie investors to a kid who is offered candy from a stranger.

“It looks like people are kind of re-gifting the candy the con has given them … they are throwing that candy into this retail investment fervor,” added the so-called “Bond King.”

“This is a terrible sign for the condition of the market for anybody who’s experienced a significant number of cycles, which I’ve definitely experienced,” Gundlach said.

The coronavirus rout brought a copious amount of new accounts to online brokers this year as amateur investors sought to get a slice of the epic market comeback. Charles SchwabTD AmeritradeEtrade and Interactive Brokers all experienced a big boost in activity, while millennial-favored Robinhood saw a historic 3 million new accounts in the first four months of 2020.

Many on Wall Street have raised red flags on the rise in speculative behavior as the retail crowd piled into some of the riskiest corners of the market. At one point, some bankrupt stocks and penny names saw their shares double in one session, while the most beaten-down shares were also bid up drastically. The buying stampede also spilled into more sophisticated options markets.

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