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A stock market rally even wilder than 1999 could be on the way, says Paul Tudor Jones.
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The billionaire investor thinks easy fiscal and monetary policies could lead to “huge” profits.
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The end result could be a “blow off,” the peak moment for the market, he said.
Stock markets could be heading for a rally that will be even bigger than the rally that preceded the eventual dot-com bust of the early 2000s.
Paul Tudor Jones, the famed hedge fund investor and founder of Tudor Investment Corporation, said he foresaw an even bigger, “more explosive” run-up in the stock market than what investors saw in 1999. That could ultimately lead to a “blow from the top,” he suggested, pointing to two factors in particular that could fuel the rally.
“I think all the ingredients are there, and certainly from a trading perspective you have to position yourself as if it were October 1999,” the billionaire hedge financier told CNBC on Tuesday, later adding that he believed the current environment was conducive to “massive” price increases. “It's potentially much more explosive now than 1999.”
Jones said he believed the market has two ingredients in particular that could spark such a rally.
An easy monetary policy is the first. The Fed is largely expected to continue cutting rates, a long-awaited bullish catalyst expected to boost the price of risky assets like stocks and crypto.
Central bankers are operating partially blind due to the delayed release of economic data due to the government shutdown. However, according to CME's FedWatch tool, Fed officials are largely expected to cut rates another 50 basis points through the end of this year.
The second ingredient is a flexible fiscal policy. The U.S. budget deficit for 2025 has risen to about $1.8 trillion, or 6% of GDP, Jones said. That is a much more stimulating environment compared to the late 1990s, when the US had a budget surplus.
Markets have not seen such an ideal environment for equities in terms of monetary and fiscal policy in the post-war period, Jones said.
Despite the comparisons to a previous bubble, Jones suggested this isn't necessarily the time for investors to cut back on stocks or flock to other assets. The market has typically seen its highest returns in the 12 months leading up to the peak of the bubble, he said, adding that he believed investors should have a mix of gold, crypto and technology stocks in their portfolios.
“It's like the Prince song,” Jones said. “Party like it's 1999, right? It feels exactly like 1999.”
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