Stanley Druckenmiller, a veteran hedge fund manager, explained on CNBC that he was “humbled” by the strong performance of the stock market in late May, and admitted that he had underestimated the positive force the Federal Reserve was capable of exerting.
“I had long-term concerns for the last few years that because of easy money, too much debt was being built up in the corporate sector,” Druckenmiller said on “Squawk Box.” “When COVID hit, I was pretty much of the view that there was a good chance that the credit bubble had finally burst, and the unwinding of that leverage would take years.”
As a result of his worry, Druckenmiller missed the unique opportunity to realize substantial profits from an impressive rally in the market. From the moment the market reached its low point on March 23, the S&P 500 gained 40%. Compare that with Druckenmiller’s return during the same period of only 3%.
In mid-May, worried over the corporate debt bubble, Druckenmiller told the Economic Club of New York that the stock market was overvalued.
“The risk-reward for equity is maybe as bad as I’ve seen it in my career,” Druckemiller said on May 12. “The wild card here is the Fed can always step up their (asset) purchases.
Since he spoke in May the S&P 500 has risen over 11%. The Nasdaq Composite also performed well, becoming the first of the three major indexes to reach a historic high in early June.
Now Druckenmiller says he feels completely differently about the market today.
“I would say since that time, a couple of things have happened technically. I would also say I underestimated how many red lines, and how far, the Fed would go,” he said.