Legendary investor Paul Tudor Jones sounds alarm on what happens to stocks over the next 10 years

Paul Tudor Jones built his name by seeing trouble before most of Wall Street did.

The wealthy investor made a legendary profit from the 1987 stock market fall after researching parallels between the market conditions and the time of the 1929 catastrophe.

Almost four decades later, Jones isn’t forecasting a second Black Monday.

But he worries about what higher stock market values would signify for investors over a much longer time horizon.

Jones warned on Patrick O’Shaughnessy’s Invest Like the Best podcast in April that buying the S&P 500 at high valuations could yield low or negative forward returns. Jones said long-term investors would struggle to profit from those starting levels.

Part of his worry was the size of the stock market compared to the U.S. economy. Jones pointed to the US stock market valuation of around 252% of gross domestic product, much above levels surrounding prior significant market tops.

Since Jones made those statements, the market has altered. But a new Bank of America report reaches a similar conclusion.

In a note dated Sept. 14, the bank said many of its valuation metrics now suggest negative S&P 500 returns over the next decade.

That is hardly a forecast of an impending collapse.

It’s a caution against something that may be more vexing for long-term investors: paying high prices now and having very little to show for it years from now.

Paul Tudor Jones sees an unusually expensive stock market

Jones believes U.S. equities have become extraordinarily large relative to the economy.

In an interview published April 28 with Invest Like the Best, Jones said the U.S. is more “over-equitized” than at any previous moment in its history.

Jones estimated overall U.S. stock market value at around 252% of GDP. That is around 65% in 1929 and 170% surrounding the dot-com boom in 2000.

Such analogies are not to say that today’s market is bound to replicate each occurrence.

The market structure, business profitability, interest rates, and the mix of the U.S. economy have all altered dramatically throughout the decades.

Rather, Jones’ point is that financial assets are crucial to the economy.

If family wealth is highly concentrated in shares, then stock price swings may impact consumer confidence and spending. Falling share prices may also impact companies’ funding and investment choices.

Also read: S&P 500 analyst does an about-face on street-high target as Fed cracks down

Jones said value sent a more obvious message to investors.

He cited the S&P 500’s lofty price-to-earnings ratio during his April visit and said that purchasing at such values has often been correlated with poor future returns.

That is a warning of a fundamentally different kind than anticipating a market meltdown in the coming month or year.

Valuation measurements are often poor instruments for predicting when markets will go up or down. Costly markets might become costlier.

Instead, Jones is looking at the gains investors may make over a much longer horizon.

S&P 500 valuations have changed since Jones’ warning

It’s a crucial difference for investors to make.

Jones’ interview, taped in February, was released in April. His value comments should not thus be taken as market measures as of September.

Since then, the S&P 500 has become cheaper on at least one widely recognized metric.

On Sept. 11, the index was selling at around 19.21 times forward earnings, its lowest forward price-to-earnings ratio since April 2025, according to FactSet data. Higher profit expectations helped push the multiple down even as equities remained at historically high levels.

This doesn’t change Jones’ larger point.

The precise value has shifted, but the anxiety about long-term returns has not.

Bank of America provided further proof of it this month.

The S&P 500’s normalized P/E ratio was 32, the bank wrote in a Sept. 14 letter to clients. That statistic is different from the traditional future P/E ratio, which compares stock prices to average earnings over many years.

More Wall Street:

Based on the historical relationship tracked by the bank, that valuation implies an average annual S&P 500 return of approximately negative 3% over the next decade.

And it wasn’t the only warning sign.

Bank of America calculates 10 valuation metrics. The Shiller P/E ratio, as well as five other measures, including the price-to-book ratio and the ratio of market capitalization to GDP, likewise were predicting negative returns until 2036.

Taken together, the 10 measures implied an average annual return of about negative 1.4%, according to the bank.

That adds a fresh dimension to Jones’ warning, which is months old.

The market isn’t trading at exactly the value he was arguing for.

But some of today’s Wall Street models are coming to a similar conclusion about the future decade.

Bank of America sees another way to own the S&P 500

Bank of America’s study also points to a significant twist in the valuation argument.

Not all parts of the market are pricey equally.

The bank claimed the capitalization-weighted S&P 500 had a normalized P/E ratio of 32, compared with a normalized multiple of about 25 for the equal-weighted version of the index.

That divergence led to radically different consequences for historical returns.

Bank of America’s model estimated minus 3% annual returns for the conventional S&P 500 over the next decade vs roughly positive 3% annually for the equal-weighted index.

That’s important because the traditional S&P 500 provides the biggest corporations the most power over how the index performs.

Equally weighted indexes, in turn, assign each component an equal weight, roughly.

That doesn’t make the equal-weighted index the winner over the following 10 years. History doesn’t guarantee future value connections.

Bank of America itself has cited reasons why today’s market could be more robust than its historical valuation models indicate, including the financial soundness of today’s S&P 500 corporations.

But the analysis supports a major element of Jones’ case.

Valuation upon entry is critical.

Even if the underlying companies continue to expand, the price investors pay for future profits might impact the returns they ultimately receive.

Paul Tudor Jones sees a historic problem with today’s stock market

Michael Ostuni / Getty Images

Paul Tudor Jones made his name during the 1987 crash

Jones’ caution is made all the more significant given his experience with severe markets.

Before the October 1987 fall, Jones and his colleagues looked at parallels between the market climate and the era of the 1929 collapse.

The Dow Jones Industrial Average plunged more than 22% in a single session on Oct. 19, 1987, Black Monday, its largest one-day percentage decline.

Jones had bet against the market and reportedly earned about $100 million during the crisis.

That event helped cement Jones as one of the best-known macro traders on Wall Street.

But his recent claim should not be seen as a prophecy that history is poised to repeat itself.

Jones focused on the link between initial values and longer-term investment outcomes. He also highlighted excessive leverage in outlining the characteristics that might lead pricey markets to collapses, MarketWatch reported.

That difference matters.

A pricey stock market is not a certain lead-up to an imminent crash.

Valuations may expand into corporate profits. Prices may remain flat. Earnings can catch up. Or value multiples might drop slowly over the course of many years.

For the long-term investor, each path might lead to an entirely different conclusion.

Expensive stocks create a different kind of risk

Investors frequently connect market risk with severe downturns.

Another take on Jones’ reasoning is that investors have paid so much for an asset that ongoing economic and profit growth nonetheless delivers lackluster investment returns.

The mechanism is rather simple.

Rising profits translate with rising stock values.

Investors also choose how much they want to spend for each dollar of those profits.

If earnings growth outpaces a falling market P/E multiple, the two pressures may partly balance each other.

That process doesn’t need a depression, recession, or financial crisis.

It might take years to slowly happen.

Other valuation models are also flashing similar warnings.

A new examination of nine historically relevant valuation measures revealed that seven of them suggest the S&P 500 would underperform inflation over the next decade. The measurements, taken together, indicated an average annualized real return of minus 3.2%, although valuation signals have stayed strong for years even as equities continued to increase.

That argument is a good one.

Valuation may tell you something about predicted long-term returns, but it doesn’t tell you what stocks are going to do tomorrow.

That’s also why a high value isn’t a countdown clock to a collapse.

Paul Tudor Jones isn’t calling for another 1987

Perhaps the most fundamental difference in Jones’ argument is what he is not forecasting.

He’s not dating the next bear market.

He’s not suggesting Black Monday is coming again.

And the historical links he mentions don’t mean that investors purchasing equities now would really lose money over the next decade.

His argument is about probabilities and starting prices. There is also evidence supporting a more optimistic interpretation.

The forward earnings ratio on the S&P 500 had dropped to around 19 by mid-September, thanks to improving earnings projections, which made the index cheaper on that basis than it had been in 17 months.

Bank of America also warned that value predictions based on history may be unduly negative since S&P 500 firms now seem different from those in other times.

That creates two opposing realities for investors.

On some counts, the S&P 500 isn’t as pricey as it was earlier this year.

But a number of longer-run valuation measures remain high enough to suggest an abnormal lack of future returns.

But Jones’ warning is right in the middle of that discussion.

For an investor who made a fortune betting on one of Wall Street’s speediest disasters, he’s bringing attention to a far slower-moving danger.

Investors don’t have to wait for a market crash for a dismal decade.

Stocks may go sideways. Valuation multiples might decline even while earnings grow. Inflation may reduce nominal gains.

Jones is not really asking what the S&P 500 will perform tomorrow.

He’s asking what investors paying the high prices of today could have left in 10 years.