October 1, 2022

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

Ray Dalio says the pain 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 at its third meeting on Wednesday — investors can still expect increased competition for stocks in the form of higher yields and damage to corporate earnings, the founder of Bridgewater Associates said Wednesday. in the morning.

“I believe that as you raise the interest rate to an appropriate level, competition will drive it down, and then it will also hurt earnings, hurt the economy,” Dalio said at MarketWatch’s Best New Ideas in Money Festival in midtown Manhattan.

Dalio said he believes the Fed will raise the federal funds rate to between 4-5%, that the US economy will deteriorate into a stagflationary environment in 2023, and that S&P 500 will pay the price by dropping another 20%, repeating a a call he made in the past few days.

Year to date, the S&P 500 is down 19%. The cap on the Fed funds rate is currently 2.5%, and is likely to rise to 3.25% after the FOMC meeting ends on Wednesday.

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

The first is yes 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 taken into account. For example, the two-year Treasury bill is yielding 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, including cash, in real dollars, so you think about purchasing power,” Dalio said. “And then you think about the types of assets — 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.

Dalio also recommended investors they keep their portfolios well balanced and diversified, and avoid timing the market.

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

In the long run, Dalio said remains bullish on Chinaand said property prices there are low.

Some examples Chinese stocks owned by Bridgewater include Tencent Music Entertainment Group (TME) and Baidu (WILL BE).

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

Dalio, whose hedge fund is the world’s largest with $150 billion in assets under management, is not the only investment titan who says U.S. stocks are still in significant decline.

Guggenheim Investments CIO Scott Minerd said in a tweet in recent weeks that stocks should fall another 20 percent given how high they are amid high inflation.

Jeremy Grantham, the founder of GMO who called the dot-com bubble, also said in an Aug. 31 comment that “every historical parallel suggests the worst is yet to come,” and said three other times in the past 100 years that stocks have been are expanded as they are currently, the market has fallen 50% or more.

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

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