Wall Street legend Paul Tudor Jones says a recession could hit the US this fall
- The US could be in for recession as soon as this fall, Wall Street legend Paul Tudor Jones said.
- Jones pointed to the boom in debt and asset prices in recent years, which suggests a downturn is imminent.
The US could be in for a recession as soon as this fall, as the bubble in asset prices that's inflated in recent years begins to deflate, legendary investor Paul Tudor Jones said.
In an interview with CNBC on Monday, Jones pointed to the massive boom in debt and asset prices following the pandemic, when the Fed dialed back interest rates to near-zero in order to prop up the economy. That led the S&P 500 to soar to an all-time-high in late 2021.
But cyclical booms are typically followed by a recession within the next few years, as was the case for the downturns beginning in 1990, 2001, and in 2007. Given the time debt and asset prices peaked in the current financial cycle, that suggests the US could be headed for a recession as soon as this fall, he estimated.
"Historically, it's about a two year lag when that really really bites, and you go into recession," Jones said. "That would be third quarter this year, there's a good chance that – based on our most recent financial episode – there's a really good chance that we're on the verge of looking like or actually going into recession," he added.
Other Wall Street commentators have flagged recession risks over the past year, as central bankers aggressively raised interest rates to tame inflation. Higher rates threaten to overtighten the economy into a downturn, experts say. The potential for disruption was highlighted earlier this year amid the chaos in the banking sector and volatility has been amplified by the ongoing debt ceiling crisis.
But despite the gloomy economic outlook, stocks aren't necessarily doomed to fall, and the market could potentially move higher despite a slowing economy, Jones said.
That's largely because the Fed is expected to have finished its rate hiking cycle in May, with investors now pricing in a 24% chance that the central bank cuts rates 25 basis-points as early as the July policy meeting, per the CME FedWatch tool.
A pivot to rate cuts is expected to be bullish for stocks – especially if Congress agrees to raise the national debt limit, preventing a US debt default and quelling market volatility. That event could potentially create a buying opportunity for stocks, Jones said.