Ray Dalio founded the hedge fund Bridgewater Associates.
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- Ray Dalio has said the Fed’s plans to tighten monetary policy shouldn’t derail the economic recovery.
- Yet the billionaire investor said speculative technology stocks are vulnerable to big falls.
- Markets expect the Fed to raise interest rates three times in 2022, starting in March.
Billionaire investor Ray Dalio has said the Federal Reserve’s tightening of monetary policy in 2022 shouldn’t derail the economic expansion, but is likely to weigh heavily on “bubble-type” tech stocks.
The Fed has signaled that it plans to hike interest rates this year as it tackles the strongest inflation in 39 years.
Markets reckon the US central bank will raise rates in March, and then hike another two times before the year is out, taking the federal funds rate to between 0.75% and 1%, according to CME Group’s FedWatch tool.
But Dalio, founder of the world’s biggest hedge fund Bridgewater Associates, told CNBC Thursday that although raising rates is a “delicate” business, it shouldn’t knock the economy.
“In the third year of the cycle, as we’re in, that normally is not enough to send the cycle down,” he said on the “Closing Bell” show. He added that it was simply the beginning of the testing of the Fed’s brakes.
“It could send financial asset prices lower, but I would expect that if you understand the short-term cycle, this is typically a seven-year type of cycle in terms of expansions and recessions,” Dalio said.
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Dalio said that the Fed’s actions are likely to weigh on the more speculative corners of the stock market, however.
He noted that some tech stocks have experienced “a bubble-type of behavior” and said these companies would likely be hit as rates go up.
Higher interest rates are seen as bad for tech stocks — especially unprofitable ones — as they aren’t likely to start earning until the far future, meaning holders lose out on returns here and now. That makes bonds and other investments such as banks look more attractive to investors.
The prospect of Fed hikes has pushed up bond yields sharply and knocked tech stocks this year, with the tech-heavy Nasdaq 100 tumbling 3.12% Wednesday in its biggest fall since March. Ark Invest’s Innovation ETF – seen by analysts as a proxy for unprofitable tech companies – has slumped 12% this year so far.
“This is not an environment that’s particularly conducive to those types of investments,” Dalio said.
He said investors may want to consider buying inflation-indexed bonds or gold to try to gain some protection against strong price rises.