Paul Tudor Jones, one of the most successful investors in history, is worried about the stock market.
The billionaire hedge fund manager believes that equities are mirroring their behavior from 1999, right before the dot-com bubble burst.
“We are just again in this craziest monetary and fiscal mix in history. It’s so explosive. It defies imagination,” said Jones on CNBC’s Squawk Box this morning.
“It reminds me a lot of early ’99. In early ’99 we had 1.6% PCE (personal consumption expenditure), 2.3% CPI (consumer price index). We have the exact same metrics today.”
He continued, adding that, “the difference is fed funds were 4.75%; today they’re 1.62%. And back then we had a budget surplus and we’ve got a 5% budget deficit. You can’t make it up.”
“We have an impeachment, we just had three rate cuts because we have this external crisis,” Jones noted, drawing even more comparisons with 1999.
“Crazy times.”
That means Jones thinks investors should “get out” immediately, right?
Not exactly.
When asked if it’s a good time to sell, Jones responded:
“Not really. The train has got a long, long way to go if you think about it.”
And though that may sound contradictory, Jones is absolutely right. Back in ’99, the S&P 500 surged 19.11% over the course of the year. Investors who sold-off in “early ‘99” missed a whole heap of gains.
Doing so now could prove to be an equally costly mistake, despite a “powderkeg” of economic stressors looming over the market.
One of Jones’s biggest concerns is over the newly discovered coronavirus outbreak in China. The virus, which has infected 291 people and killed 6, can be passed from person-to-person according to Chinese authorities. Back in 2003, China was stricken by SARS (severe acute respiratory syndrome), which caused significant stock sell-offs as traders buckled down for an international pandemic.
Thankfully, by July of that year, SARS was largely contained and eliminated. Jones is worried that the new coronavirus could cause an ailing Chinese economy to spiral out of control, derailing the American bull market.
“That’s a big deal. If you look at what happened in 2003 […] stock markets sold off double digits. If you look at the escalation of the reported cases, it feels a lot like that,” he said.
Whether the outbreak has an effect on the market remains to be seen. In 2003, the S&P eventually recovered from the “SARS effect,” rising 26.12% on the year.
As of midday today, the index is down 0.20% as investors weigh the severity of the virus.
The Lunar New Year holiday, which lasts from January 24th – 30th in China, is one of the country’s busiest public transportation windows of the year. Hundreds of millions of people are expected to travel.
If the coronavirus outbreak is truly a serious problem, investors will likely find out sometime in early February. Chinese officials are taking every precaution to prevent the virus from spreading, but with an incubation period of one week, there’s no telling how many confirmed cases there actually are.
“There’s no vaccination. There’s no cure,” Jones said.
“If I was an investor, I’d be really nervous.”
