Hedge fund guru: Big Democratic win may lead to short-term market rally

Billionaire hedge fund investor Paul Tudor Jones said Thursday that a Democratic victory in the general election could cause the stock market to rally in the first quarter of next year, but that stock and bond markets could come under pressure as potential Biden tax hikes erode corporate profits.

He expects that a bailout for mass business and another round of stimulus check distribution to most Americans could cause Robinhood retail investors to drive a market rally in the first quarter of 2021.

“I think the expectations around what will happen after the ‘blue wave’ sweeps the election are correct, as the U.S. will get a massive fiscal stimulus next year, which will be a huge boost to the economy. There is no doubt that mass business under the plan will benefit,” Jones said.

“But on the other hand, financial assets will also be affected. I think financial assets are going to suffer tremendously in the long run, driven by the ‘blue wave’ and the Biden tax increase plan.”

Jones noted that the Democrats have pledged to introduce a series of policies that would raise taxes on individuals earning more than $400,000, including raising taxes on personal income, capital gains and payroll. In his campaign, Biden proposed taxing long-term capital gains at an ordinary income tax rate of 39.6 percent on income over $1 million, and also pledged to partially offset Trump’s 2017 tax cuts by raising the corporate tax to 28 percent.

Jones said, “I think Biden’s tax increase will go exactly as he plans, which will help mass business and ordinary Americans, but at the expense of those whose wealth is concentrated in the stock market and the 1 percent in financial assets.”

The Biden tax plan is expected to raise $3.05 trillion in revenue over 10 years, which would be used to fund spending programs aimed at reforming housing, education, health care and child care.

Proponents of the Biden plan say the measures would ensure a healthier and more productive U.S. labor market, with spending offset in the long run by higher economic output.

Jones also said he expects Democrats to win big in the November election, based on polls and market odds he tracks.