Why a top hedge fund investor says markets under Trump could be more complicated than traders are hoping
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- Stanley Druckenmiller says "animal spirits" have been unleashed as Trump takes office.
- Business leaders have shown optimism for Trump's pro-business policies.
- But if the economy sees accelerated growth, it could lift bond yields and hurt stocks.
Top investor Stanley Druckenmiller said "animal spirits" have been unleashed by President Donald Trump, but he doesn't expect easy stock market gains going forward.
Talking to CNBC on Monday, Druckenmiller, who runs a $3 billion family office, said business leaders are thrilled about the Trump administration's rise to power.
"We do a lot of talking to CEOs and companies on the ground, and I'd say CEOs are somewhere between relieved and giddy," Druckenmiller said. "So we're a believer in animal spirits."
Druckenmiller said that in his 49 years of business, he's never before seen Washington D.C. switch from "the most anti-business administration," referring to the Biden administration, "to the opposite."
Top technology CEOs like Mark Zuckerberg of Meta Platforms and Elon Musk of Tesla are among the business luminaries telegraphing extreme optimism for the Trump 2.0 era.
That giddiness has also been seen in surveys of small business owners.
The Small Business Optimism Index from the NFIB Research Foundation said its December 2024 survey saw optimism among small businesses surge to a six-year high.
"Small business owners feel more certain and hopeful about the economic agenda of the new administration," Bill Dunkelberg, chief economist at NFIB said of the December survey.
"Expectations for economic growth, lower inflation, and positive business conditions have increased in anticipation of pro-business policies and legislation in the new year," he added.
While all of that business-related optimism sounds great for the stock market, Druckenmiller isn't so sure that investors can count on easy returns in the Trump years.
That's because if government policy drives an acceleration in economic growth, it could push bond yields even higher, keeping a lid on stock prices.
The rise in bond yields since the Fed started cutting interest rates in September led to a six-week pullback in the stock market starting in early December.
"In terms of the markets, I would say it's complicated," Druckenmiller said, highlighting that stock valuations relative to bonds look the most unattractive in 20 years.
"You're going to have this push of a strong economy versus bond yields rising in response to that strong economy, and that kind of makes me not have a strong opinion one way or the other," he added, marking a departure from the bullishness that's pervaded the stock market since Trump won in November.
Druckenmiller said he would remain a stock picker during the Trump administration, focusing on individual stocks more than the broader market.
AI remains a favorite area for Druckenmiller, who said that he's bullish on companies where the adoption of the technology could help drive efficiency gains and boost profits.
Finally, on the topic of potential tariffs from the Trump administration, Druckenmiller said he isn't too concerned as long as they are reasonable.
"To me, tariffs are simply a consumption tax that foreigners pay for some of it," Druckenmiller said, adding that retaliation from other countries is a risk. But if the US stays in the 10% range on tariffs, he said "the risks are overblown relative to the rewards."