Julia La Roche
• Correspondent Thu, December 3, 2020
Legendary macro hedge fund manager Paul Tudor Jones expects “an explosion” of economic growth next year as a coronavirus vaccine becomes more widely available.
As the federal government moves quickly to approve and distribute experimental inoculations from Pfizer (PFE)-BioNTech (BNTE) and Moderna (MRNA), Wall Street’s becoming increasingly bullish on 2021. Reflecting that mood, the CIO and founder of Tudor Investment Corp., expects risk appetite to rebound even further, especially with Congress and the Federal Reserve pumping more stimulus.
“I think the stock market’s on a combination of fiscal monetary pulse that we’ve never seen before in history, nothing like this,” Jones told Yahoo Finance in an exclusive interview on Wednesday. For that reason, stock multiples are frothier than in the year 2000, when the tech bubble sent the Nasdaq to its first historic high.
And he anticipates a COVID-19 vaccine will jumpstart economic growth, which may have potential political implications.
“The vaccine’s going to bring us back. We’re going to have an incredible growth rebound,” the investor predicted, as pent-up demand from the last year gets carried forward in a big way.
“I have four kids in their 20s. And, it’s like a horse at the beginning of a race,” Jones said. “They’re so ready to get to see their friends, to get to restaurants, to vacation. They’re just ready to get out and go crazy, like I think everyone else in the world,” he added.
For that reason, the investors sees “a second-quarter explosion” in retail, and virtually every other level.
“And you’re going to have this just massive boom. And the consequences of that, I think, are pretty clear for fixed income. Fixed income will probably go down during that. Commodities will probably go up,” the investor said.
Even frothier than 2000?
A trader works on the floor of the New York Stock Exchange shortly before the end of the day’s trading in New York July 31, 2013. REUTERS/Lucas Jackson Jones noted that 20 years ago, real rates were about 250 basis points, while the nominal rates were near 6%, and the market still was able to achieve lofty valuations. Today, real rates are negative 200 basis points, while nominal rates are 0%, he added.
“And again, you can see why you’ve got Tesla (TSLA) at 900-times earnings because of the fact there’s really no real good alternative for your cash,” he added.
Now that the general election is in the rear-view mirror, Jones expects that a fresh wave of investment cash will be unlocked as the uncertainty dissipates.
“Irrespective, a lot of times even what the fundamentals are, risk capital comes back in the markets, and that’s kind of what we’re seeing now. And I assume that trend is going to continue,” Jones added.
Jones, who is more known as a macro trader than an investor, said there are some events to watch heading into 2021. Some of those are political in nature, like the runoff races in Georgia that will determine the balance of power in the Senate.
General election polls were wildly off the mark, overstating support for President-elect Joe Biden and the Democrats. In that regard, Jones told Yahoo Finance that “anyone that thinks that this election is forecastable is just wrong. So I think the Senate is a 50/50 toss-up.”
While the number of voters from the general election might drop during the Jan. 5 runoffs in Georgia for two hotly contested seats, “it’s going to be about who mobilizes their base,” Jones added.
While mail-in voting may favor Democrats, most Republicans prefer in-person balloting. It means that “there’s just a lot of unknown events around this runoff. And so I think it’s a coin toss,” Jones said — warning of “binary consequences” that can favor one party or the other but not both.
“It’s going to be all or nothing. You’re either going to have two blue senators or you’re going to have two red senators. And they’ll have significant, significant consequences for some assets,” he added.
Yet according to Jones, the pent-up demand he sees post-vaccine likely won’t be influenced by the Georgia outcome in January.
“Maybe it’ll be an accelerant if you had a blue wave as opposed to a red wave. But again, I think we pretty much charted the course to some type of absolute supersonic boom come second and third [quarters] Q2 and Q3 next year,” he said.
As Biden fleshes out his legislative priorities, Jones predicted that Democrats may push for more infrastructure spending that would “probably accelerate that growth path a bit.” However, most of the outlook is riding on a vaccine that’s set to “unleash so much pent-up demand that you’re going to really see a lot of growth in the second and third quarters,” the investor added.
“And you’re going to see commodity prices probably rally, see inflation come back. There’ll be a whole suite of things that, again, I think are pretty much baked in the cake,” Jones said.
Julia La Roche is a correspondent for Yahoo Finance. Follow her on Twitter.