Ray Dalio warns the stock market's cushion against rising bond yields is shrinking
Ray Dalio says earnings have cushioned stocks from rising bond yields, but that buffer is shrinking as he warns free cash flow could weaken.
TL;DR
- Stocks face increasing pressure from rising bond yields and the prospect of weaker corporate cash flows.
- Earnings growth has supported stocks against the global bond sell-off, but this advantage is diminishing.
- The relative advantage of stocks over bonds is shrinking as stock prices climb and bond yields increase.
- Investors should pay attention to free cash flows, as they may deteriorate even if earnings improve.
- The global bond sell-off is expected to continue due to government deficits and corporate investment in technology.
- Higher borrowing costs will eventually reduce credit and spending, potentially impacting economic activity and equity markets.