The new bull market claimed one prominent bear.
Stanley Druckenmiller said he has been “humbled” but the market lately after his fund had only a 3% return as the S&P 500 gained 34%, the Dow added 35%, and the Nasdaq rose 38% since the March 23 bottom.
“I’ve been humbled many times in my career, and I’m sure I’ll be many times in the future. And the lsat three weeks certainly fits that category,” Druckenmiller said.
“I had long-term concerns for the last few years that because of easy money, too much debt was being built up in the corporate sector,” the billionaire hedge fund manager said. “When COVID hit, I was pretty much of the view that there was a good chance that the credit bubble had finally burst and the unwinding of that leverage would take years.”
Back on May 12, Druckenmiller said that “the risk-reward for equity is maybe as bad as I’ve seen it in my career. The wild card here is the Fed can always step up their [asset] purchases.”
Since then, the S&P 500 had gained 11% before Thursday’s nearly -6% fall. And Druckenmiller has changed his tune.
“I would say since that time, a couple things have happened technically,” Druckenmiller said. “I would also say I underestimated how many red lines, and how far, the Fed would go.”
“What is clearly happening is the excitement of reopening is allowing a lot of these companies that have been casualties of COVID to come back and come back in force. With a combination of the Fed money and, in particular, a vaccine where the news has been very, very good,” he added.
While Druckenmiller is still quite bearish on growth stocks in general and believes the economic reopening will boost value stocks. Even still, there are two stocks he likes now.
“I have still something like Amazon (NASDAQ: AMZN) and Microsoft (NASDAQ: MSFT) in my largest holdings, but I have the least growth weighting in my portfolio that I’ve had in maybe six or seven years,” Druckenmiller said.
Amazon shares have gained more than 38% so far this year as consumers shopped from home amid the coronavirus pandemic and resulting social distancing guidelines. For its part, Microsoft is up 18% year-to-date.
Still, Druckenmiller is “way too cautious” on the market as stocks have surged higher since that March low.
“I think it’s a fascinating time where, if you get a vaccine say by January or February, you get one distinct outcome within the market,” Druckenmiller said. “If you don’t get a vaccine for a year or two, you get another distinct outcome within the market.”
He also cautioned that a sustained rebound in stocks may depend on further stimulus.
“Then you’ve got all the stimulus plans,” he added. “If they deliver in July, you get one outcome. If they don’t, liquidity falls off a cliff and you get another outcome.”