Billionaire Jeffrey Gundlach Calls the Stock Market a ‘Hollow Tree’ as Weakness Spreads Beyond Big Tech

Detailed summary

A billionaire bond investor is sounding alarms about what he calls a hollow tree at the center of the stock market, and the numbers hiding beneath the S&P 500's record highs suggest his warning deserves a closer look.

Wall Street's major indexes can tell a comforting story even when the stocks beneath them are struggling. A handful of trillion-dollar technology companies can push the S&P 500 toward record highs while hundreds of other businesses quietly slide into correction territory. It's a peculiar feature of a market increasingly dominated by its biggest companies, and one that can leave investors with a misleading picture of Wall Street's health.

With artificial intelligence spending reaching historic levels, bond yields climbing, and borrowing costs squeezing corporate balance sheets, the divide between the market's winners and losers is becoming harder to ignore.

Billionaire bond investor Jeffrey Gundlach believes the stock market is concealing serious structural weakness. And the numbers suggest he has a point.

During an October 9 interview with economist David Rosenberg, the DoubleLine Capital founder compared the stock market to a century-old silver maple tree at his Buffalo home.

The tree appeared healthy, with abundant leaves and sprawling branches. But after an enormous limb broke off, Gundlach discovered the trunk was completely hollow. The tree had to come down.

He sees a similar problem developing in stocks. The headline indexes look healthy, but the individual companies supporting them tell another story.

On October 16, MarketWatch reported that 191 S&P 500 stocks, or approximately 38% of the index, were trading at least 20% below their 52-week highs. That's the traditional definition of a bear market.

Many successful investors eventually reach the same moment. The saving is done, the portfolio is built, and the question quietly changes from how much can I grow this to how much can I take out? Get that second question wrong and decades of good investing can come apart in a handful of years.

The last figure is especially troubling. Rosenberg said three-quarters of the broader S&P 1500 were already down at least 10% from their highs.

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