Legendary investor made an estimated $100 million on 1987 crash, now says investors could see 'negative 10-year returns'

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In October 1987, while the rest of Wall Street investors were losing their fortunes, Paul Tudor Jones was collecting one. He had spent months studying the parallels between the 1987 and 1929 crash (1), positioned his fund against the market and when the Dow dropped 22% in a single day (2) — still the largest single-session percentage decline in history — his short bets made him an estimated $100 million.

Nearly four decades later, Jones is looking at today's stock market and he's uncomfortable. His warning: Buying the S&P 500 at current valuations could lead to negative 10-year returns.

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He says there's no imminent crash, but the current structural setup makes it very hard for U.S. investors to make money over the next decade. Meaning if you load up on index funds today, you could open your brokerage app in 2036 and find less money than you put in. He laid all of this out on Patrick O'Shaughnessy's Invest Like the Best podcast (3) on April 28.

Jones runs Tudor Investment, a macro hedge fund founded in 1980. In the podcast with O'Shaughnessy, he started with the fact that the total U.S. stock market capitalization is currently 252% of GDP, per Jones's own analysis (5). For context, that figure was 65% in 1929 — before the Great Depression — and 170% in 2000, at the peak of the dot-com bubble.

In Jones's words, we are more "over-equitized" than at any other point in American history. Over-equitized means the stock market has grown so large relative to the actual economy that it now drives the economy rather than reflecting it.

Tax revenues, consumer spending and corporate investment decisions now increasingly depend on whether stock prices stay high. The U.S. has never been more exposed to what happens if they don't.

Jones connects this directly to your portfolio. The current S&P 500 price-to-earnings (PE) ratio of 22, he told the podcast, is a level that has historically implied negative 10-year forward returns — which means investors buying the index today, on average, have historically ended up with less money a decade later than they started with, according to data (6).