Tudor Jones sees a stock pop to start 2021 on stimulus, then pressure later from Biden tax plan

Billionaire hedge fund manager Paul Tudor Jones said Thursday morning that a Democratic sweep in the 2020 elections may result in an initial pop in equity markets, but warned that stocks and bonds could come under pressure later as a potential Biden tax plan erodes profits.

Expected relief to Main Street, combined with another round of stimulus checks to most Americans, could lead the “Robinhood Nation” of retail investors to fuel a market rally in the first quarter of 2021, he said.

“I think that narrative around what will happen if we have that blue wave will be correct in the sense that next year you’re going to get a massive fiscal stimulus, you’re going to get a big boost to the economy. There’s no doubt that Main Street under this program is going to benefit,” Jones said.

“But the other side of that is what also happens to financial assets. I think under a blue wave, and the Biden tax plan, financial assets over the long run suffer a great deal,” he said.

“There’s an inverse relationship — it’s loose but it’s clearly there — between stocks multiples and capital gains tax,” the manager added.

Jones called out a few aspects of former Vice President Joe Biden’s economic plan.

The Democrat has promised to enact a number of policies that would raise taxes on individuals with income above $400,000, including raising individual income, capital gains, and payroll taxes. His campaign has proposed taxing long-term capital gains at the ordinary income tax rate of 39.6% on income above $1 million.

He has also promised to roll back part of President Donald Trump’s 2017 tax cuts by increasing the rate businesses pay to 28%.

“I think the Biden tax plan is actually going to do exactly what it’s designed to do, which is to help Main Street, help the average American,” he concluded. “And it’s going to come at the expense of the 1%, primarily whose wealth is encapsulated in the stock market and financial assets.”

The former vice president’s tax plan, which is expected to raise revenues by $3.05 trillion over 10 years, would be used to finance sweeping spending programs designed to reform everything from housing and education, to health and child care.

Advocates of Biden’s plan say such measures will ensure a healthier and more productive U.S. workforce and say the spending will be offset by higher economic output in the long run.

More broadly, Jones said he’s expecting Democrats to sweep in November based on the public polls and odds markets he tracks.

Jones, one of Wall Street’s most successful hedge fund managers, is the founder and chief investment officer of Tudor Investment Corporation. He first came to renown after he predicted and profited from the 1987 stock-market crash but has over decades cemented his place as a top macroeconomic investor.

Earlier this year, Jones told CNBC that he had invested a small part of his portfolio in cryptocurrency bitcoin as a hedge against inflation. Modern government-backed currencies like the U.S. dollar, he argued, will almost always diminish in value over time and can be hedged against with stores of value like gold.

Such may be the case in the U.S., where lawmakers and the Federal Reserve have worked together throughout 2020 to stimulate an economy struggling under the coronavirus.

Though many economists say the federal government’s efforts helped avoid a more-severe recession, historic relief legislation like the CARES Act nonetheless ballooned the U.S. deficit to a new record in fiscal year 2020.

The final tally for the deficit in fiscal 2020 came to $3.13 trillion, more than triple 2019’s shortfall of $984 billion and double the previous record of $1.4 trillion in 2009, the Treasury Department reported on Friday.

The dollar index, which tracks the strength of the greenback against a basket of foreign currencies, was last trading at 92.88, well below levels north of 96 seen at the start of 2020.

But bitcoin, Jones said in May, isn’t subject to the effects of government spending or central bank policy, making it a potential hedge against a sudden rise in inflation.

“If you take cash, on the other hand, and you think about it from a purchasing power standpoint, if you own cash in the world today, you know your central bank has an avowed goal of depreciating its value 2% per year,” Jones said on May 11. “So you have, in essence, a wasting asset in your hands.”

Subscribe to CNBC PRO for exclusive insights and analysis, and live business day programming from around the world.