June 10, 2023

  • Ray Dalio, founder of Bridgewater Associates, said Wednesday that the stock could fall further.
  • Dalio made the comments at MarketWatch’s Best New Ideas at the Money Festival.
  • He shares two tips for navigating the current environment.

Ray Dalio says the pain stocks have faced this year may not be over yet

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

“I believe that when you raise interest rates appropriately, competitiveness will drive it down, and even then, it will hurt earnings, it will hurt the economy,” Dalio said at MarketWatch’s Best New Ideas at the Money Festival. In Midtown Manhattan.

Dalio said he believes the Fed will raise the fed funds rate to between 4-5%, that the US economy will deteriorate into a stagnant environment in 2023, and S&P 500 The price will be repaid by a further decline of about 20%, a repeat In recent days he has called.

Year-to-date, the S&P 500 is down 19%. The Fed funds rate ceiling currently sits at 2.5%, and could rise to 3.25% after Wednesday’s FOMC meeting concludes.

Given his bearish outlook, Dalio was asked how investors should approach the current environment and gave two answers.

The first is Invest in inflation-indexed bonds as opposed to nominal bonds. The former protects investors from rising or falling inflation rates, while nominal bonds can lose money when inflation is factored in. For example, a 2-year Treasury note yields 4% — a healthy yield but still below the 8.3% year-over-year increase in consumer prices in August.

“Start looking at the return on your assets with cash in real dollars, so you can think about buying energy,” Dalio said. “And then think about the type of asset — for example, and an inflation-indexed bond is probably better than a nominal one.”

Vanguard Short-Term Inflation-Protected Securities ETF (VTIP) offers exposure to inflation-indexed bonds.

Dali also recommended investors Keep their portfolios well balanced and diversified and avoid market timing.

“The most important thing you can do is to have a well-balanced portfolio, not to time the market, but to diversify,” says Dalio. “I wouldn’t encourage market timing. Go through these things.”

Long-term, Dalio said China remains bullishAnd said asset prices are low.

Some examples of this Bridgewater’s holdings are Chinese stocks Includes Tencent Music Entertainment Group (TME) and Baidu (BIDU)

SPDR S&P China ETF (GXC) offers broad exposure to Chinese equities.

Dalio, whose hedge fund is the world’s largest with $150 billion in assets under management, isn’t the only investment titan to say U.S. stocks still have plenty of downside.

Guggenheim Investments CIO Scott Minerd said in a tweet in recent weeks that the stock would fall another 20% given how high the valuation is amid high inflation.

Jeremy Grantham, the founder of GMOs known as the dot-com bubble, also said in an Aug. 31 comment that “every historical parallel indicates that the worst is yet to come,” and said that three more times in the past 100 years stocks would have been as inflated as they are now. , the market fell 50% or more.

Some Wall Street strategists — including Bank of America, Goldman Sachs and Morgan Stanley — said they see about a 20% downside for the S&P 500 if a recession occurs.

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