Paul Tudor Jones said on Tuesday that the current market reminds him “a lot of early ’99 [when inflation was low and the stock markets were soaring].”
“We are just again in this craziest monetary and fiscal mix in history,” Tudor Jones said at the World Economic Forum in Davos, Switzerland. “It’s so explosive. It defies imagination.”
But another billionaire investor notes that there are key differences between today’s market and that of 1999.
“Interest rates were a lot different back then,” Mark Cuban told CNBC this week. “And you saw a lot more people participating in the market. … You don’t see that now. That individual day trading really led the market to be frothy.”
According to Cuban, as day trading has diminished, index funds have risen in their place, creating a vastly different landscape between the two times.
“There’s so much money chasing index funds, so as long as those funds keep on growing the market is going to go up,” Cuban said.
Tudor Jones’ comment echoes a growing concern that the market’s current valuation is reminiscent of the bull market in 1999 that ended with the collapse of the dotcom bubble.
Back then, the Federal Reserve set its benchmark rate at 4.75%. Today, interest rates are at 1.5% to 1.75%, and Cuban said interest rates will ultimately determine the fate of the stock market, which has continued to rally in the first few weeks of 2020 following a strong finish to 2019.
“I think interest rates will tell us what’s going to happen next in the market,” Cuban said. “Is it frothy? You can definitely make that argument. Is it like 1999? No.”
Sevens Report Research founder Tom Essaye agrees that interest rates will determine how the market shakes out this year.
In a note from this week, Essaye wrote that the S&P 500 can’t trade at its current price-to-earnings ratio of 19 times forever, and added that such prices have “never been sustainable before.”
Essaye said that if the dovish Fed of 2019 turns hawkish this year, the market will see at least a 10% pullback.