Legendary hedge fund manager Paul Tudor Jones told CNBC that next year could be a tough year for the stock market due to increased stock supply from IPOs of big tech companies, as well as a potential toll from the growing U.S. budget deficit.
“2027 is going to be really, really tough for the stock market,” Jones told “Squawk Box” Tuesday. “You have probably the most negative flow chart for the U.S. stock market that we’ve seen, say, since 2002.”
The founder and chief investment officer of Tudor Investment said corporate buyouts, as well as mergers and acquisitions, have been a tailwind for the stock market for most of this four-year bull market because they have reduced the supply of stocks.
This trend is now turning against the market with major upcoming deals in AI from Anthropic and OpenAI, as well as a just-completed deal in SpaceX. There will also likely be more secondary offerings from companies to raise money for AI development, Jones said. All this translates into an increase in the supply of shares which could weigh on prices.
The billionaire hedge fund manager’s comments come as investors worry that a bull market now in its fourth year is starting to run out of steam as concerns grow around rising inflation, rising bond yields and a more hawkish Federal Reserve.
Jones reiterated that the current market period is akin to 1999, about a year before the dot-com bubble burst in 2000. He noted the bifurcation of today’s market between companies benefiting from the AI boom and those not benefiting from it.
Concern about the deficit
He also added that a growing budget deficit is among the dangers for the current stock market, for which he believes there could be a countdown.
“We’re never going to close these deficits until the market forces us to. It’s going to be like 2008 and TARP (Troubled Asset Relief Program). So that’s the reality. No politician will voluntarily raise taxes or cut spending. They will be forced to,” he said.
“And the only question is: Are we now at that tipping point where the market is about to do that? And if you put a gun to my head, I’d say 60-40, we’re on that path,” he continued.
Another headwind for the market is oil, which he is long, according to the hedge fund manager. He argued that prices could rise another $20 to $25 after the midterms, a scenario the stock market would “hate” if it came true.
“I’ll be short all year. There’s little value there,” Jones said. “You had all these issues, all these IPOs in 1998 and 1999, and really in 2000, 2001, 2002. Those were the easiest years to woo because you kept having these unlocks that just added supply to the market.”
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