Ray Dalio on market risks
Although Ray Dalio said at the World Economic Forum that this market rally will continue in the near term, he believes there are some risks that could affect market (SPX-INDEX) movement.
According to Ray Dalio, the Fed’s rate hikes are the key risks for markets (SPY) (QQQ) (COMP-INDEX). If the Fed follows an aggressive rate hike process, then we might see drops in asset prices. He said, “You can’t have a significant rise in interest rates without knocking over the whole asset market. Fed is going to determine what the level of real interest rates are.”
Fed’s rate hike process
The Fed started its gradual rate hike process in December 2015. Between December 2015 and December 2017, it hiked its key interest rates five times. Each time, it was a 25-basis-point hike. Now, the Fed funds rate is within the range of 1.25% to 1.5%.
As the US economy (VFINX) is improving, a gradual rate hike process is appropriate. However, if the Fed continues the rate hike process at an aggressive rate, then we might see a drop in various asset prices.
In the next part of this series, we’ll analyze Ray Dalio’s view on tax reforms and the US wealth gap.