Paulo Whitaker/Reuters
- Stocks could slump within the next few months, says Tudor Investments' Ulrike Hoffmann-Burchardi.
- Risks include AI disappointment, slower growth, and banking problems, the investor warns.
- Inflation, a government shutdown, and a private-market shakeout could also cause problems, she says.
The US stock market faces a raft of potential dangers, any of which could trigger a downturn within months, one elite investor warned.
Ulrike Hoffmann-Burchard, a portfolio manager at Tudor Investment Corporation, reeled off a bunch of risks during an episode of "The Meb Faber Show" released this week.
She cautioned that artificial intelligence might be less transformational in the short-term than many people think, and the Federal Reserve's rapid hikes to interest rates since last spring could crimp economic growth and weigh on corporate earnings.
Hoffmann-Burchardi, who oversees a global stock portfolio within billionaire investor Paul Tudor Jones' flagship fund, also noted the recent climb in energy prices might herald an inflation resurgence.
Moreover, she flagged the risks that political gridlock causes another government shutdown, the banking sector gets into more trouble, and the process of shaking out pandemic excesses rattles the economy.
"I would not be surprised if any one of them, or a combination, could lead to an equity-market correction in the next three to six months," Hoffmann-Burchardi said.
The top-flight investor underscored that at the start of this year, experts were forecasting minimal GDP growth and a sharp decline in corporate profits. Stocks jumped when the economy proved resilient and earnings surpassed expectations, but positive surprises appear less likely now, she said.
"If we look at the back half of the year, the micro and the macro don't look quite as rosy," she cautioned. "I expect GDP growth to slow. I think the weight of interest rates will be felt by the economy eventually."
Hoffmann-Burchardi also emphasized that rock-bottom interest rates during the pandemic allowed private companies to raise money at eye-watering valuations. Many of them have discovered their business models aren't profitable at higher rates, leading to closures and sales at a fraction of their previous worth. As that trend continues, many people will feel poorer and jobs will be lost, she argued.
The Tudor portfolio manager also raised the prospect of more lenders failing after Silicon Valley Bank, Signature Bank, and First Republic Bank collapsed this spring. Other regional banks may have placed bets on commercial real estate, private credit, or private equity that have soured as interest rates have risen, she said.
"The excitement around generative AI, and also low earnings expectations, have sprinkled this fairy dust on an underlying challenging economic backdrop," Hoffmann-Burchardi said. "It's important to remain vigilant about what could change this shiny picture."