During his recent fireside chat with Paul Tudor Jones at Robin Hood NYC 2023, Stanley Druckenmiller discussed his long-term perspective on the stock market saying, we won’t see significant growth in the coming years because it has been trading at a higher valuation due to factors like past quantitative easing. He expresses skepticism about earnings growth and is hesitant to invest in the market when it’s trading at 20% above its historical valuation. Here’s an excerpt from the conversation:
Druckenmiller: The stimulus the Biden administration has done is obviously very targeted. Most of it toward green economy, the IRA, and it’s bigger than they said.
We’ve got subsidies and tax breaks on top of it. That will create opportunities in the stock market. There’s a big thing going on in AI. That’ll probably create opportunities in the stock market.
But that very stimulus puts pressure on rates which will cause all kinds of other things within the stock market to break.
Look we’ve been through two or three months of a pretty devastating period. All I know is every sale I made, I’m happy about, and every buy I made, I’m not thrilled with.
The sentiment positioning is such that I’m not really excited about being short in the intermediate term.
Maybe more importantly, longer term we have this belief in this country that stocks always go up over the longer term. I said a couple of years ago, and I still believe it, I think the S&P was 4500, about where it is now, that I thought the equity market would be the same place in ten years that it was then.
Why did I say that? Because again we had a bubble.
We had a QE period for ten years, and we need to make an adjustment fundamentally and price wise.
And if you look at the market in the non-QE world, pre world, 15 times earnings was about right. We’re at 20 times earnings. I don’t know what we’re doing at 20 times earnings.
Tudor Jones: That’s earnings that are supposed to go up next year.
Druckenmiller: No, that’s sort of our estimate of where they are, where they’re going to be this year. But I don’t think they’re going to go up next year. I think flat at best.
So it’s hard for me to get excited about the long side of the overall market, forget individual stocks.
With the market say 20% above its normal valuation. When you have the fiscal recklessness problem, you have supply chain problems, you have the worst geopolitical situation I’ve seen in my lifetime. 78/79 was bad, but for the first time, it’s a very low probability but you got to put the potential outcome of World War on the table.
Not exactly an environment that excites me about paying 20% to 30% above the multiple for equity prices.
You can watch the entire discussion here:
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