Legendary investor Ray Dalio says that if this scenario occurs, the stock will drop another 20%
Legendary investor Ray Dalio probably needs no introduction, his track record and reputation as an investor simply speaks for itself. Dalio is one of those investors who likes to comment on market events and the future outlook. Today, we'll take a look at his latest comments where he talks about a possible 20% drop and the Fed's actions.
Ray Dalio - one of two investment directors at Bridgewater Associates, the world's largest hedge fund.
Why is Dalio expecting another 20% drop in stocks?
"We're starting to see all the classic early signals": Legendary investor Ray Dalio says the stock market must fall further before a recession hits. He estimates that raising rates from where they are to about 4.5% will have about a 20% negative impact on stock prices.
For most of this year, the Fed has held steadfast to its "soft landing" goal for inflation, the idea of beating inflation without a dramatic economic downturn.
- However, this has so far proven to be a less likely option, as has the statement along the lines of - inflation is transitory, don't worry (2021) 😄
- However, despite a series of interest rate hikes, inflation is still pretty high and big business, led by Dalio, is saying it's not a question of if there will be a recession, but when.
After another rate hike and Fed Chairman Jerome Powell's promise to stay the course until inflation falls, Bridgewater founder Ray Dalio said the Fed will likely continue to tighten its monetary policy until high prices fall, regardless of the consequences. As a result, a recession is likely within the next year.
This isn't the first time Dalio has sounded the alarm about looming economic problems. Back in June, he argued on social media that a ''soft landing'' was beyond the Fed's reach, even though Bridgewater beat the bear market in the first half of this year and delivered a 32% return to investors while other companies struggled.
Dalio's comments followed the Fed's decision to impose a third consecutive 75-basis-point rate increase this year. Before June, the bank last made such a large rate hike in 1994.
Those hikes have already significantly slowed economic growth in the US, according to Dalio.
"Right now we're very close to a 0% growth year," he said. "I think it's going to get worse through 2023 and then 2024, which will have implications for the election."
The S&P 500 fell 1.7% to two-month lows after another Fed rate hike. In doing so, Dalio joined other billionaire investors like Carl Icahn in saying the stock market will fall further this year as the Fed continues to raise interest rates, adding that the bond market will be hit particularly hard.
Last month, Federal Reserve Chairman Jerome Powell said the central bank will stop at nothing until inflation is under control, even if it means some pain for households and businesses.
"We have to get inflation under control. I wish there was a painless way to do it. There isn't." That pain, Dalio said, will be keenly felt over the next few years. "The Fed always has a trade-off," he said, between economic strength and inflation. Since the bank's goal now is inflation, it will set the direction until the "economic pain" is considered more serious than inflation, then there will be a reversal in their strategy.
Dalio also states that his vision is supported by the fact that people are still spending a lot and have plenty of cash, which can be applied to investors. Another aspect is employment, where although many companies are ''trimming'' staff, the numbers are still quite high.
- How do you see it? Do you think the Fed will even be able to make a soft landing anymore?
- Do you think another 20% drop in stocks is realistic?
- What is your strategy for this period? 🤔
Please note that this is not financial advice. Every investment must go through a thorough analysis.