Crash Ahead: Ray Dalio Warns of US Central Bank Policy Consequences: Stock Market Could Crash by 20 Percent – ​​These Stocks Are Cutting the Decline | Newsletter

• The Federal Reserve raised interest rates again
• Ray Dalio forecasts an interest rate between 4.5 and 6 percent
• The negative impact on the stock market

The Federal Reserve raises interest rates by 0.75 percentage points

Only in September did the US Federal Reserve raise interest rates again. After the monetary authorities, the interest rate continues as expected by 0.75 percentage points From 3.0 to 3.25 percent, fears of a recession caused by the difficult economic situation increased again monetary policy It can be operated in the United States. Ray Dalio, businessman and founder of asset manager Bridgewater Associates, predicts that the economy will come under pressure due to high rates of inflation and the resulting increases in key interest rates and therefore will also have a negative impact on the stock market, as he writes in a text article on the LinkedIn career portal.

Anticipate the negative economic impact

According to the expert, there is a familiar pattern: first prices rise, then central banks raise interest rates to control the amount of money and credit available. “Interest rates relative to inflation rates, that is, real interest rates, have a significant impact,” Dalio said. After that, the consequences of higher interest rates will appear in the markets. Stock prices and most income-generating assets fall because, on the one hand, income is stagnant and there is less money to invest overall, and on the other hand, asset prices must also fall to remain attractive. . returns get. The hedge fund manager continued: “As investors know that these events will slow earnings growth, this will also be reflected in capital goods prices, which in turn will affect the economy.”

The relationship between the interest rate and the inflation rate

The critical factor here is the relationship between interest rates and the rate of inflation. “When central banks set interest rates low relative to the rate of inflation and provide ample credit, they encourage a) borrowing and spending and b) investors who sell debt instruments, such as bonds, and buy inflation-linked assets. , which, of course, “accelerates economic growth and increases inflation,” Dalio said. The opposite is also true, that is, if they set high interest rates for inflation and adjust the money and credit supply, they will have the opposite effect. stabilize at the point where both values ​​are probable. This is an improvement process comparable to “solving a synchronized equation,” says the Bridgewater founder.

Warning of a stock market crash

According to Dalio, the long-term inflation rate in the United States should be between 4.5 and 5 percent. According to the market expert, “I think that interest rates should increase considerably (towards the upper end of the range of 4.5 to 6 percent) and a significant decrease in private credit will limit spending”. “This will slow credit growth for the private sector, which in turn will limit private sector spending and therefore the economy.” Not only is this likely to have implications for the current discount rate, but asset income will also fall due to the weak economy. Specifically, Dalio predicts that a rise in US interest rates to 4.5 percent will cause the stock market to crash at a rate of 20 percent. Assets with longer maturities will be particularly affected by higher interest rates, while losses on investment products with shorter maturities should be lower. Revenue is likely to drop by ten percent. “The bottom line is I think it’s possible that the inflation rate will be much higher than people and the Federal Reserve want (while annual inflation will go down), interest rates will go up, other markets will go down, the economy will be weaker than expected, and all this without taking into account the deteriorating trends of internal and external conflicts and their impact”, summarizes the manager of the hedge fund.

Standard values ​​as a precaution?

This means that the cards are likely to be reshuffled in the market. So how should investors position themselves? According to the “TipRanks” analysis platform, which collects reviews from many strategists, Dalio is a supporter of standard values. In his database, there are two leading stocks, recommended for purchase not only by Dalio himself, but also by most analysts.

T-Mobile US is pleased with customer growth and share buybacks

This also includes shares in Deutsche Telekom’s US subsidiary T-Mobile. The mobile operator had to close in the second quarter of 2022 due to expenses related to the merger with Sprint in 2020 Loss of more than 108 million dollars Acceptance, which corresponds to 9 cents per share, the company managed to score points in attracting customers. The Telekom subsidiary managed to conclude nearly three million new contracts at the end of the second quarter, of which approximately 1.7 million were returned to postpaid customers. In terms of sales, T-Mobile US was flat at $19.7 billion, while net cash flow increased 11% to $4.2 billion. As recently as September, rival AT&T and Verizon also announced that To repurchase up to $14 billion worth of stock.

This also seems to please Dalio: in the second trimester The hedge fund manager has purchased an additional 167,283 shares of T-Mobile and thus owns 481,462 shares with a total value of $64.8 million as of the reporting date.

Share T-Mobile ‘Top Position’

Cowen analyst Gregory Williams was also bullish on the stock, Tip Ranks wrote. “We see the 2022 print and lift patterns as confirmation of our thesis that T-Mobile is a strong player in the wireless group not only from a microeconomic perspective (better network, better value, and growth opportunities in new areas) but also from a macroeconomic and equity perspective (using synergies). The rapid increase in FCF/share, the creation of a profit vision) is the best situation,” the strategist was quoted as saying by Al Bawaba. “Despite the ‘long busy’ position, momentum for further gains in stock prices remains, in the spirit of T-Mobile. As such, we continue to see T-Mobile as best positioned in this challenging environment as the fundamentals continue to thrive.” … Over the long term, the stock could go as high as $187, based on Williams’ valuation. The shares were recently priced at $134.17 on Nasdaq (closing price on September 30, 2022).

Williams joins her colleagues in her rating: A total of 14 strategists gave T-Mobile stock a positive rating on the platform, and there are no “hang” or “sell” recommendations. The average target price is $174.38.

CVS Increases Sales: Acquires Signify Health

The second stock among Dalio’s favorite products is the pharmacy chain CVS. In the second quarter of 2022, the provider of pharmaceutical, hygiene and food staples generated $80 billion in book sales, which corresponds to an increase of 11 percent over the same quarter of the previous year. Not only was the US retailer recently able to pay off $1.5 billion in debt, it also paid a dividend of $0.55 per share as of August 1.

Agreement concluded in September take the control From the health platform Signify Health shows the current strong position of CVS. The provider has about 10,000 doctors in the US and has entered the pharmacy chain with $8 billion.

The strong data should also satisfy Dalio, who had a total of 1,935,319 CVS shares in his portfolio in the second quarter of 2022. As of the end of June, he owned 3,146,236 shares, valued at $291 million.

A win-win environment

In addition to the Bridgewater founder, JPMorgan strategist Lisa Gill is also excited about the drug company’s stock. “We believe this brings CVS closer to its goal of managing more lives through value-based adoption relationships,” said the expert quoted by TipRanks. “With 2.5 million in-home and virtual patient visits, we believe Signify will provide CVS with additional opportunities to better serve patients. Through a network of virtual and in-person options, CVS has the ability to bend the cost curve of a value-based care environment.” Patient/Motivator/CVS Sides”. So it should come as no surprise that Gill gave CVS shares an “overweight” rating and a $130 price target. Recently, the cost of the note on the New York Stock Exchange was $95.37. closing date September 30, 2022).

Nine analysts named on the platform recommend buying the stock, while two experts recommend holding the stock. The $123 average price target is still well above the current price level. writing

This text is for informational purposes only and does not constitute an investment recommendation. GmbH excludes any right of appeal.

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Crash Ahead: Ray Dalio Warns of US Central Bank Policy Consequences: Stock Market Could Crash by 20 Percent – ​​These Stocks Are Cutting the Decline | Newsletter