Billionaire hedge fund manager Paul Tudor Jones says the conditions are brewing for another major leg higher in US equities.
In a new Bloomberg interview, Jones says the AI rally may not meet the historical definition of a bubble, noting that valuations and price action are far more restrained than during past market manias.
“Well, it’s so funny because you mentioned that 54% of fund managers think that we’re in an AI bubble. If it’s a bubble, it’s a small one. If you just think about, and again, how do you actually define bubbles? If you think about the bubbles of the past three or four decades, the Nikkei in ’89, Nasdaq in ’99, biotech 2000, just after 2011–12, China, 2007, all those were 400% to 600% gains. The Nasdaq’s up 200% off the bottom. I don’t know whether we’re going to blow off like we did in 1999.”
Jones says all the ingredients for another wave of market enthusiasm are in place, citing a potential easing in US monetary policy as a key driver. He notes that the direction of interest rates will determine whether equity markets can sustain their current momentum.
“For me, the one thing that you can never, ever forget is that a year from today, assuming that the president gets his wishes, the Fed funds rate’s going to probably be in the 2.5%. I think they would like to see it at 2.25%.
So I think 2.5%, 2.75%, obviously, whoever the new Fed chair is going to have to be able to intellectually move that board, a majority of the board. He’s probably, whoever the new Fed chair, let’s say they’ve got six solid votes, so he’ll have to find one more. And I don’t think it’ll be that hard to do, but if you’re going to have 2.5% overnight rates or 2.75%, that’s a really compelling story for higher equity prices.”
Earlier this month, the billionaire said market conditions today are akin to “Prince’s song” amid the mix of monetary policy and speculative enthusiasm.
“Well, it’s like the Prince song. It’s 1999, party like it’s 1999, right? Feels exactly like 1999. I don’t know whether we’ll actually replay it exactly, but I think all the ingredients are in place.”
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