Veteran hedge fund manager Paul Tudor Jones said 2027 could be a tough year for the stock market. On Tuesday, October 13, he warned that rising US fiscal deficits and new tech IPOs will increase equity supply. "You've probably got the most negative flow picture," he said about current market conditions.
Veteran hedge fund manager Paul Tudor Jones believes that 2027 could turn out to be a "tough one" for the stock market.
In an interaction with CNBC on Tuesday, October 13, Tudor Jones said that the tough year could be a result of increased equity supply from big tech IPOs percolating down the pipe as well as a potential reckoning of the increasing US Fiscal Deficit, which has now crossed $40 trillion.
"You've probably got the most negative flow picture for the US stock market that we have had, say, since 2002," Tudor Jones, the founder and CIO of Tudor Investment, said, adding that corporate buybacks, along with M&A have been a tailwind for the stock market for most of this four-year bull run, as they decreased the equity supply.
That is now starting to turn with both OpenAI and Anthropic, the Artificial Intelligence giants planning for mega IPOs, following a recently concluded offering from SpaceX, which, for now, is the largest IPO in global history.
There is also likely to be more secondary offerings from companies to raise money for the AI buildout, he said, which will also add to the equity supply picture that could weigh on prices.
The hedge fund manager reiterated that the current market period is similar to 1999, a year before the dotcom bubble burst in 2000, pointing to the bifurcation in the current market between companies benefitting from the AI boom and those that are not.
Fiscal deficit is also among the dangers for the stock market, for which there could be a reckoning. "We will never fix these deficits until the market makes us to," he said, adding that it will just be like 2008 and TARP (Troubled Asset Relief Program). "So that's the reality. No politician is going to voluntarily raise tax or cut spending. They are going to be forced to," he further said.
Jones is also long on oil, which is another headwind for the market, according to him. He expects prices to rise another $20 to $25 a barrel after the midterm elections, a scenario that the stock market will hate if it comes to pass.
"I'll be short the whole year. There is little value. You had all these issuances, IPOs in 1998, 1999, 2000, 2001 and 2002, which were the easiest years to be short because you kept having these unlocks that just kept adding supply to the market." he said.