The stock market is partying like it’s 1999, and the result may well end in a painful sell-off, according to billionaire hedge fund chief Paul Tudor Jones.
“We are just again in this craziest monetary and fiscal mix in history. It’s so explosive. It defies imagination,” Jones told CNBC at the World Economic Forum in Davos, Switzerland. “It reminds me a lot of early ’99 [when] we had 1.6% PCE, 2.3% CPI. We have the exact same metrics today.”
While those two inflation measures are similar, then and now, he noted that interest rates were higher two decades ago. “The difference is fed funds were 4.75%; today it’s 1.62%. And back then we had budget surplus and we’ve got a 5% budget deficit,” Jones said. “
To Jones, “We’re in such extraordinary times. We’ve never seen a fiscal monetary mix like this. So, it argues for some massive blow-off at the top.”
But that situation doesn’t mean that investors should bail out of the market, he added. The 1990s dot-com bubble popped in March 2000, so anyone exiting early would leave money on the table, he warned. “The train has got a long, long way to go if you think about it.”
The Nasdaq Composite more than doubled from mid-January 1999 to its zenith in early March 2000, Jones emphasized. “That’s a long way from now. At the top theoretically, rates [would] be substantially higher.”
The stock market hit a peak in early 2000, with the tech-heavy Nasdaq Composite approaching 5,000. Then, as profit-free hot start-ups like Pets.com imploded, Nasdaq started at painful slide that finally hit bottom in September 2002, at half the level of January 1999. The market had a gradual recovery that only started to pick up speed in fall 2003.
What could end up squelching the current rally? Most analysts say it should last through this year because the US economy is solid, and other nations are nudging back up. Jones , founder and CIO of Tudor Investment Corporation, warned that the new “curveball” to smash the bull market could be the outbreak of the coronavirus.
“That’s a big deal,” he said and compared the disease to the SARS (severe acute respiratory syndrome), which broke out in Asia in 2002 and 2003, killing 775 people. Thus far, the coronavirus has killed six people in China, with 300 confirmed cases. Meanwhile, the disease was diagnosed in Washington State, concerning a visitor to China who had returned home. That news helped send the S&P 500 down 0.27% on Tuesday.