Dalio: Stocks' Cushion Against Bond Yields Is Shrinking — SkimNews
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- Ray Dalio warned at the Milken Institute Asia Summit in Singapore on Thursday that stocks face mounting pressure from rising bond yields and potentially weaker corporate cash flows, even as earnings continue to grow.
- Dalio said equities entered the current cycle offering significantly higher expected returns than bonds, but that relative advantage is now diminishing as stock prices climb and bond yields rise.
- Dalio told investors to focus on free cash flow rather than earnings alone, cautioning that 'if you're earning and then you're investing and you're not getting money out of that, you have a liquidity issue that's evolving.'
- Dalio said he expects free cash flows to deteriorate even as headline earnings continue to improve — and noted credit spreads are already starting to widen as the cushion narrows.
- Dalio called the current environment a 'bond bear market' with 'more to go,' as governments borrow heavily to finance fiscal deficits and companies raise funds to invest in emerging technologies like AI, competing for limited capital.
- Dalio stopped short of predicting an earnings decline or an imminent stock market correction, saying financial conditions have not yet tightened enough to significantly curb credit and spending.
Why it matters: Dalio's warning shifts the equity-vs-bonds framing from a static yield comparison to a deteriorating one: as Treasury yields stay elevated and credit spreads widen, the earnings-vs-yield gap that has propped up stocks is closing, while heavy AI-related borrowing and government deficits keep upward pressure on rates — a combination that could compress equity multiples if free cash flow weakens as Dalio expects.
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