Billionaire 'Bond King' Jeff Gundlach says it's time to get more bearish on US stocks, as the risk of deflation is much higher now

It's time for investors to become more bearish on US stocks due to the risk of deflation next year, according to billionaire investor Jeff Gundlach.

The CEO of DoubleLine Capital, who is also known as the "Bond King", advised investors to buy long-term Treasurys on Tuesday as he suggested the Federal Reserve would do well to reverse course on its interest rate hikes.

The S&P 500 could fall 20% by mid- October, according to Jeffrey Gundlach. The Fed's interest-rate increases drive up the cost of borrowing and servicing loans for companies.

He said that the action of the credit market was consistent with stock market troubles. You need to become more bearish.

The billionaire investor said he has been neutral on the S&P 500 for the last six months but is now looking for a decline of 20% or so on the stock index. The stock market tanked after the hotter-than- expected August inflation report.

"You always want to own stocks, but I'm a little on the lighter side," he said. Emerging markets are the greatest opportunity for investors.

There is a chance for the Fed to pivot away from its rate hike campaign if the US economy starts to show signs of improvement. If the central bank does not get the balance right, the economy could go into a recession.

Deficiency is the main threat to the economy and markets, according to Gundlach. He suggests that investors should look into long-term US debt securities.

He said to buy long-term Treasurys because the deflation risk is higher than it has been in the past.

Next month is not something I'm talking about. He said that he would talk about it later next year.

The Fed is likely to loosen its monetary policy if deflation occurs. Bond yields would be pushed down and Treasury prices would go up.

The market is pricing in a 75 basis point rate hike by the Fed at its September meeting and some investors are expecting a 100 basis point rise to bring inflation down to its 2% target.

The central bank is steering with its rate hikes. He said there is a lag before the effect of previous actions is felt in the economy.

He said that he might do 25 thanks to the inflation report. I would have told you to do nothing.