Dalio Warns Stock 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 the cushion protecting equities from rising bond yields is diminishing as borrowing costs climb.
- Dalio told CNBC equities have weathered the bond sell-off because earnings growth kept expected stock returns attractive relative to bonds, but that advantage is now narrowing.
- Credit spreads are starting to widen as the cushion between stock and bond returns erodes, Dalio said, with the relative pricing shift reducing equities' room to absorb higher rates.
- Free cash flows are likely to deteriorate even as earnings continue improving, with Dalio warning of an evolving "liquidity issue" for companies that keep investing without generating returns.
- The global bond sell-off has further to run, Dalio said, as governments borrow heavily to finance fiscal deficits and companies raise funds for emerging technologies like AI.
- Financial conditions have not yet tightened enough to significantly curb credit and spending, with Dalio calling the tightening process "only beginning."
- U.S. Treasury yields hover near multi-decade highs amid large government deficits, persistent inflation, and rising AI-related borrowing, Dalio noted.
Why it matters: Dalio is framing the bond rout as a fiscal and capex story, not a Fed one — and warning that earnings growth won't shield stocks forever. Investors screening for strong free cash flow will be better positioned, while cash-burning AI capex names face the steepest liquidity risk as the cushion narrows.
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