S&P 500, on Thursday, is building on its gains from last night that realised after the U.S. Federal Reserve switched to a narrower 25 basis points increase in interest rates.
Still, billionaire investor Ray Dalio recommends moving with “caution” since the upside may just prove to be short lived. In fact, he now favours cash over both stocks and bonds.
Real interest rates went from minus 175 basis points to plus 175 basis points. You’ve got a cash rate that’s relatively high. So, cash used to be trashy. But cash is pretty attractive now. It’s attractive in relation to bonds and stocks.
Chair Powell also confirmed yesterday that rate cuts were unlikely in the back half of the year (read more), which further takes a shot at what the bulls were leaning on. The benchmark index is now up nearly 9.0% year-to-date.
Strength of the U.S. dollar and earnings estimates that are still reasonably high despite revisions could continue to serve as headwinds as well.
Put together, Dalio is particularly dovish on tech stocks that he’s convinced are not suitable for an environment where the Fed is expected to keep rates higher for longer. On CNBC’s “Squawk Box”, Dalio said:
You lose parts of the economy, parts of the market that are the bubble parts that needed the cash flow. So, you’re seeing it reflected in the long duration stocks.
The tech-heavy Nasdaq Composite is down about 25% versus its record high at writing.
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