Paul Tudor Jones Warns Of “Major Shift” That Will Have Serious “Consequences” For Markets

Last time Paul Tudor Jones made news on CNBC, the longtime macro manager proclaimed that the looming inflationary wave – still incipient at the time – would create serious ructions in both markets and the real economy.

Fast forward a few months, and with the S&P 500 headed for what would be the longest losing streak of the COVID era, the network brought PTJ back for an interview ahead of Fed Chair Jerome Powell’s nomination hearing.

The former Tudor Investment chief said Tuesday morning that the trades that performed the best during the pandemic would likely soon tumbled back to earth.

“Clearly all the #inflation trades of the pandemic era are going to be challenged right now,” says @ptj_official on #crypto #bitcoin. “The things that performed the best since March of 2020 are going to probably perform the worst as we go through this tightening cycle.” pic.twitter.com/paOXucYG2B

— Squawk Box (@SquawkCNBC) January 11, 2022

Put another way: investors will likely shun “stay at home” tech stocks to crypto while long-suffering deep value names might finally have their moment in the spotlight.

“The things that performed the best since March of 2020 are going to probably perform the worst in this tightening cycle,” he said.

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“We’re getting ready to see a major shift and it’s going to have a lot of consequences for a variety of asset prices,” he said.

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“Clearly, all the inflation trades of the pandemic area are going to be challenged right now,” the Tudor Investment CIO added.

Like Warren Buffett, PTJ remains exceedingly bullish on the US market’s long-term promise compared with the rest of the world. But right now, valuations are so “lofty”, that it’s making him nervous.

“If you were going to make a bet on the economy for the future, clearly you’d bet it here in the United States rather than any other country in the world,” says @ptj_official. “Yet, I’m nervous because we’re at such lofty heights.” pic.twitter.com/CqyHb0Nv8i

— Squawk Box (@SquawkCNBC) January 11, 2022

With Wall Street adjusting to the possibility that and then perhaps as many as three – or even four – additional hikes later in the year), PTJ warned that stocks would face “tough sledding”. As Citi’s Matt King explained to the bank’s clients, in theory, this series of events would create serious pressure on the central bank to stop raising rates and reverse course, further cementing the Fed’s commitment to MMT (although they would never tell you that).

Another serious problem that will likely negate the Fed’s ability to engineer a “soft landing”, as Jamie Dimon described it yesterday: PTJ said the Fed needs to “play catch-up” after remaining dovish too long and allowing inflation pressures to build up.

“I don’t think [Fed Chair Jerome Powell] can catch up fast enough to try to deal with the inflation problem he has right now,” Jones said.

Moving away from monetary policy PTJ also commented on a recent survey that found Google parent Alphabet to be the most “just” company operating in the US today. In addition to Alphabet, Intel, Microsoft, Salesforce.com and BofA rounded up the top slots.

While PTJ’s comments on the outlook for stocks will likely leave investors more than a little concerned, investors should take a beat before they really panic: after all, if the market does crash like PTJ expects, the Fed will have little choice but to quickly step back in and send valuations climbing higher yet again.