The Problem: Massive US Interest Payments
Billionaire investor Jeffrey Gundlach, nicknamed the “Bond King,” believes a massive daily interest payment on the US national debt is the reason the stock market isn’t rallying. He points out that despite the Federal Reserve cutting interest rates, the stock market hasn’t seen the usual positive response. This, he says, is unusual and points to a deeper problem.
Gundlach’s Analysis
In a recent CNBC interview, Gundlach highlighted that the S&P 500 has lost most of its gains since the Fed started cutting rates in the third quarter of 2024. He notes that typically, when the Fed lowers rates, risk assets like stocks see a boost. However, this isn’t happening. The lack of a rally, even with the Fed’s rate cuts, is what concerns him. He specifically cited the daily interest expense on the US Treasury debt, exceeding $3 billion, as a major factor.
The Numbers
The US government’s interest payments are enormous. According to the Committee for a Responsible Federal Budget (CRFB), the government shelled out $882 billion in interest during the 2024 fiscal year (October 1, 2023 – September 30, 2024). That’s over $3 billion every single day.
Gundlach’s Conclusion
Gundlach believes this massive interest expense is a significant problem hindering the stock market’s recovery. He suggests the old adage “Don’t fight the Fed” – meaning investors should hold onto riskier assets when the Fed cuts rates – isn’t working this time, and that this trend will likely continue.
