December 8, 2022

  • Bridgewater Associates founder Ray Dalio said Wednesday that shares are likely to fall further.
  • Dalio made these comments at MarketWatch’s Best New Ideas in Money Festival.
  • Share two tips for navigating the current environment.

Ray Dalio says the pain that stocks have faced this year probably isn’t over yet.

As the Federal Reserve continues to raise interest rates — it raised rates by 75 basis points for their third consecutive meeting on Wednesday — investors can continue to expect increased competition for stocks in the form of higher returns, and damage to corporate earnings, the Bridgewater Associates founder said Wednesday morning. .

“I think as you raise the interest rate to what is appropriate, competitiveness will drive it down, and then, too, it will hurt profits, it will hurt the economy,” Dalio said in Best New Ideas at the Money Festival on MarketWatch. In midtown Manhattan.

Dalio said he believes the Federal Reserve will raise the federal funds rate to between 4-5%, that the US economy will get worse in 2023 in a stagflationary environment, and that Standard & Poor’s 500 You’ll pay the price by dropping about another 20%, repeat a The call he made in recent days.

Year-to-date, the S&P 500 is down 19%. The federal funds rate ceiling is currently at 2.5%, and is likely to rise to 3.25% after the conclusion of the Federal Open Market Committee meeting on Wednesday.

Given his negative forecast, Dalio was asked how investors are handling the current environment, and he gave two answers.

The first is Investing in inflation-indexed bonds instead of nominal bonds. The former protects investors from rising or falling inflation, while nominal bonds can lose money when considering inflation. For example, two-year Treasuries yield 4% – a healthy yield but still less than the 8.3% year-over-year rise in consumer prices in August.

“Start by looking at the return of your assets, including cash, in real dollars, until you consider purchasing power,” Dalio said. “Then think about asset types – for example, inflation-linked bonds are probably better than nominal bonds.”

ETF Vanguard Short-Term Inflation-Protected Securities (ETF)VTIIP) Displays the bonds linked to the inflation index.

Dalio also recommended that investors Keep their portfolios balanced and diversified, and avoid market timing.

“The most important thing you can do is have a balanced portfolio, not to market time, but to diversify,” Dalio said. “I wouldn’t encourage market timing. Walk around this stuff.”

In the long run, Dalio said Still optimistic about ChinaHe said that asset prices there are low.

Some examples of Chinese Stocks in Bridgewater Holdings Tencent Music Entertainment Group includes (TME) and Baidu (Baidu).

SPDR S&P China ETF (GXC) is widely exposed to Chinese stocks.

Dalio, whose hedge fund is the world’s largest with $150 billion in assets under management, isn’t the only investment giant to say US stocks continue to suffer a significant drop.

Scott Minerd, chief information officer at Guggenheim Investments, said in a tweet in recent weeks that stocks should drop another 20% given how high valuations are amid rising inflation.

“Every historical parallel suggests the worst is yet to come,” Jeremy Grantham, the founder of the dot-com bubble GMO said in a commentary dated August 31, and said that stocks have fallen three more times in the past 100 years as they are now, and have fallen. Market by 50% or more.

Some Wall Street strategists – including those at Bank of America, Goldman Sachs and Morgan Stanley – said they see nearly 20% more declines for the S&P 500 in the event of a recession.

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