Ray Dalio Warns Stock Market Cushion Against Bond Yields Shrinks
Ray Dalio warns that rising bond yields and narrowing earnings cushions may eventually trigger liquidity issues and reduce global economic activity.
Founder of Bridgewater Associates Ray Dalio warned at the Milken Institute Asia Summit in Singapore that the stock market's ability to withstand rising bond yields is diminishing. He explained that while earnings growth previously cushioned equities during the global bond sell-off, this advantage is narrowing as stock prices climb and yields increase.
Dalio asserted that the world is currently in a bond bear market that likely has further to run, driven by corporate spending on artificial intelligence and heavy government borrowing to finance deficits. He cautioned investors to prioritize free cash flow over headline earnings, predicting that cash flows will deteriorate even as earnings improve, which could create liquidity issues.
While Dalio did not predict an imminent market correction, he warned that tightening financial conditions will eventually reduce credit and spending, weighing on overall economic activity.
