Hedge-fund titan Paul Tudor Jones believes the Federal Reserve has delivered its last interest-rate hike for the cycle, which should keep U.S. stocks elevated heading into the end of 2023.
But that doesn’t mean the market will revert to minting double-digit gains year after year like they did during the decade that followed the financial crisis of 2008. Instead, Jones told CNBC in a Monday interview that stocks could be stuck in a “massive…multi-year trading range,” echoing comments from legendary macro investor Stanley Druckenmiller, who said last week that U.S. stocks might go nowhere for a decade.
Jones said that the record decline in the consumer-price index over the past year should allow the Fed to declare victory over inflation.
“Definitely I think they are done,” Jones said. “They could probably declare victory now.”
“CPI has been declining for 12 straight months. That is never happened in history,” he added.
On Friday, an uptick in consumer inflation expectations included in the University of Michigan’s consumer-sentiment data helped weigh on U.S. stocks, with the S&P 500 SPX,
See: Why the stock market will struggle to rally until debt ceiling, bank woes are in rearview mirror
Still, data released earlier in the week showed U.S. consumer-price inflation increased by 4.9% during the 12 months through April, according to the latest CPI index, released last week.
Looking ahead, Jones said he expects the U.S. stock market to become even more “bifurcated” thanks in part to the advent of artificial-intelligence breakthroughs like the large language models that power programs like ChatGPT.
“We’re going to have a more bifurcated market than we’ve ever had over the course of the next five to 10 years because the launch of large language models is going to create a productivity boom,” he said, comparing the advent of the AI revolution to the dawn of personal computers and the Internet.
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Druckenmiller made a similar point last week when he said he was betting on companies like Nvidia Corp. NVDA,
Stocks should move even higher once the “Kabuki theater” of the debt-ceiling stalemate has been resolved, ushering in a brief “halcyon period” for financial assets. The S&P 500 is up more than 7% so far this year, according to FactSet data.
“Six months from now, stocks are higher, interest rates are lower, there is a halcyon period post last hike where asset prices do OK, commodities barely recover, and the dollar does nothing,” Jones said.
Asked if he would buy more bitcoin right now, Jones said the pioneering cryptocurrency deserves a small portfolio allocation.
“It is the only thing that humans can’t adjust the supply in so I’m going to stick with it as just a small diversification in my portfolio,” he said.
