Jones predicts shorting US stocks in 2027: Supply-demand reversal and dual squeeze from oil prices

According to Woofun AI, legendary Wall Street hedge fund manager Paul Tudor Jones made a major prediction on CNBC's "Squawk Box," stating bluntly that 2027 will be an “extremely, extremely tough year” for the stock market, and he made it clear he plans to short U.S. equities for the entire year, citing the near absence of value in the market.

This aggressive trading plan quickly sparked intense discussion in the market—after all, the warning comes from a top trader who successfully anticipated the 1987 U.S. stock market crash. However, Jones did not assert that U.S. stocks are about to crash immediately; rather, he believes equities could continue to rise in the final months of 2026. This seemingly contradictory view is rooted in his precise insight into deep structural changes in the market.

Analyzing Jones’ bearish logic, the core issue is not simply overvalued tech stocks or an artificial intelligence bubble, but a key variable often overlooked by ordinary investors: a fundamental reversal in equity supply and demand. Over the past four years, the sustained rally in U.S. equities has been supported not only by corporate earnings growth and the AI boom, but also by share buybacks and M&A activity leading to reduced shares in circulation. Now, this force is fading. SpaceX (SPCX.US) has completed a major IPO, and AI giants like OpenAI and Anthropic are lining up to go public. Additionally, tech companies need to raise considerable funds to build data centers and purchase chips, which they achieve by issuing new shares, causing a substantial increase in new stock supply. Post-IPO share unlocks further intensify potential selling pressure. If fund inflows cannot keep pace with the growing equity supply—even if company performance remains stable—valuations will come under pressure.

Woofun AI’s data compilation shows that Goldman Sachs (GS.US) forecasts U.S. annual equity issuance to peak in 2026–2027. Jones points out that 2027 could bring the most unfavorable fund flow environment for U.S. equities since 2002, drawing comparisons to the 1998–2002 dot-com bubble cycle: despite the compelling narrative of the tech revolution, new equity issuance, unlocked shares, and valuation normalization ultimately wreaked havoc on the market.

In addition to the supply-side pressures, Jones raises a second concern: macro stress from rising oil prices. He is bullish on oil and expects crude prices to rise another $20 to $25 per barrel, with the main risk stemming from heightened Iran-related geopolitical tensions following the U.S. midterms. Surging oil prices will directly increase inflationary pressure, limit the Federal Reserve’s ability to cut rates, and keep bond yields elevated.

This high cost of capital environment is particularly unfavorable to tech stocks reliant on high future growth to support their valuations. Jones worries about a double squeeze: dilution from increased equity supply on one side, and valuation pressure from higher capital costs on the other. Looking back, Jones’ most famous achievement came on October 19, 1987, “Black Monday,” when the Dow Jones Industrial Average plunged approximately 22.6% in a single session. He became legendary for anticipating the crash. This history ensures the market still pays close attention to his warnings today.

However, accurately predicting one crash does not guarantee that every bearish call will be successful. Jones’ track record shows he excels at identifying macro risks, but he is less precise in timing when those risks will translate into market declines. In October 2022, he told CNBC he thought the U.S. economy may have already fallen into recession or was on the verge, but events did not play out that way. In May 2023, he predicted the end of Fed rate hikes and a year-end rally for U.S. equities—a correct directional call; yet, in October that year, he again warned of a challenging environment and forecasted a recession in early 2024 but the U.S. economy proved unexpectedly resilient, and stocks continued higher. The S&P 500 rose 24.23% in 2023 and another 23.31% in 2024 (excluding dividends), in stark contrast with his cautious outlook.

Meanwhile, other market titans are expressing differing views. Bridgewater’s founder Ray Dalio, speaking at the Forbes Global CEO Conference in Singapore, warned that the AI investment boom has become a classic bubble, edging ever closer to a breaking point. Dalio is concerned about excessive debt financing, as tech firms take on large borrowings to build AI infrastructure; rising rates would increase their debt burdens, and if returns cannot cover costs, valuations will be shaken. He advocates portfolio diversification rather than outright short selling.

Bulls take a sharply different stance: Goldman Sachs (GS.US) Research, in a report on October 12, projected that the S&P 500 could reach 8,700 points over the next 12 months, about 12% above its October 10 level of 7,811. Goldman forecasts S&P 500 EPS to hit $415 in 2027 and $460 in 2028, expecting drivers to shift from valuation expansion to corporate earnings growth.

Fundstrat Research Director Tom Lee stated on October 14 that despite inflation data and AI stock sell-offs weighing on the market, share prices may have overreacted, approaching technical support zones and offering investors a buying opportunity. Veteran strategist Ed Yardeni postponed his S&P 500 target of 8,400 points to mid-2027 but remains optimistic on the U.S. economy and corporate earnings, expecting 2027 EPS of $425. This represents a third Wall Street view: the economy may not face significant trouble, but the stock market is unlikely to enjoy prior lofty valuations.

The harsh reality of investing is that being right on the long-term trend does not guarantee profit, while being wrong on the short-term move can incur a hefty cost. In 1987, Jones made his name with acute crisis anticipation; nearly four decades on, he is warning the market again. Amid competing views, ordinary investors should avoid rushing to take sides. Instead, they should deeply understand Jones' concerns about supply-demand reversal and macro squeeze, and make decisions in line with their own risk tolerance. The final answer awaits the markets in 2027.