Markets

Paul Tudor Jones sees an 'explosive combination' of forces driving the market higher

Key Points
  • "We've got an explosive combination of monetary and fiscal policy right now," billionaire investor Paul Tudor Jones says.
  • The Federal Reserve has cut rates three times this year, including last month. Stocks have also gotten a boost under the Trump administration from lower corporate taxes.
  • Jones thinks this combination can propel the market further into record territory.
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Paul Tudor Jones: We have an explosive combination of monetary and fiscal policy right now

Billionaire investor Paul Tudor Jones said Wednesday the stock market is getting a boost from a combination of easy monetary policy in the U.S. and lower taxes.

"We've got an explosive combination of monetary and fiscal policy right now," Jones told CNBC's "Squawk Box." "We've got a 5% budget deficit coupled with the lowest real rates that you can image with the economy at full employment. That's the most unorthodox, and potentially explosive, combination that you can imagine. It's like the photo negative of 1930, when we had the last trade war, but you had tight fiscal and tight monetary policy. Now we have the exact opposite."

The Federal Reserve has cut rates three times this year, including last month. Fed Chairman Jerome Powell, who is scheduled to testify in front of Congress at 11 a.m. ET, raised the bar for further rate cuts at last month's meeting, but suggested that rate hikes were unlikely in the near future.

The Fed's easing measures followed four rate hikes in 2018, the last of which contributed to a massive correction last December. This reversal helped pave the way for a record run for stocks. Jones believes the rate cuts have made up for any damage from the trade war.

The S&P 500 notched an all-time intraday high in the previous session — breaking above 3,100 for the first time — and is up 5.7% over the past three months through Tuesday's close. The Nasdaq Composite also posted intraday and closing records on Tuesday while the Dow Jones Industrial Average came within a hair of its intraday record.

Stocks have also gotten a boost under the Trump administration from lower corporate taxes signed into law by President Donald Trump in 2017.

Jones thinks this combination can propel the market further into record territory.

To be sure, the market's outlook is not completely rosy for Jones. He noted stocks will "definitely decline" if a Democrat defeats Trump in the 2020 presidential election because investors will likely take that to mean taxes are going higher.

Jones gained notoriety in the late 1980s after calling the 1987 market crash. He launched the JUST U.S. Large Cap Equity ETF last year, a fund that scores businesses on factors including worker treatment and environment. The ETF is up 23.4% in 2019, outperforming the S&P 500 by 0.1 percentage points through Tuesday's close.

—CNBC's Tom Franck contributed to this report.

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