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Need to Know: Ray Dalio says watch out for rates reaching this level, because Wall Street stocks will take a 20% hit

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After that CPI shock earlier in the week, Wall Street is bracing for a fresh batch of data including retail sales, on Wednesday, with a deepening yield curve inversion between 2- and 10-year bonds gives off ever gloomier economic signals. There’s good news though, as a disastrous rail strike may be averted.

There’s no cheering up billionaire investor and hedge-fund manager Ray Dalio who in our call of the day asserts the Fed has no choice but to keep driving up interest rates, at a high price to stocks.

And he’s putting some fairly precise guesswork out there. “I estimate that a rise in rates from where they are to about 4.5% will produce about a 20% negative impact on equity prices,” Dalio said in a LinkedIn post dated Tuesday.

Some are forecasting the Fed could hike interest rates by 100 basis points next week, a move not seen since the likewise inflationary 80s. The central bank’s short-term rate hovers between 2.25% to 2.5%, but Nomura, for one, sees that rate headed to 4.75% by 2023.

But Dalio thinks interest rates could even reach the higher end of a 4.5%-to-6% range. “This will bring private sector credit growth down, which will bring private sector spending, and hence the economy down with it,” he says.

Behind this prediction is the Bridgewater Associates founder belief that the market is severely underestimating where inflation will end up — at 2.6% over the next 10 years versus what he sees as 4.5% to 5% in the medium term, barring shocks.

Read: Why a single U.S. inflation report roiled global financial markets — and what comes next

As for what happens when people start losing money in the markets — the so-called “wealth effect” — he expects less spending as they and their lenders grow more cautious.

“The upshot is that it looks likely to me that the inflation rate will stay significantly above what people and the Fed want it to be (while the year-over-year inflation rate will fall), that interest rates will go up, that other markets will go down, and that the economy will be weaker than expected, and that is without consideration given to the worsening trends in internal and external conflicts and their effects.”

The markets

Stock futures
ES00,
-0.18%

YM00,
-0.13%

NQ00,
-0.34%

are inching up, with Treasury yields
TMUBMUSD10Y,
3.448%

TMUBMUSD02Y,
3.822%

climbing and the dollar
DXY,
+0.04%

easing up some.

Oil prices
CL.1,
-0.55%

are tilting south, alongside gold
GC00,
-0.78%
.
China stocks
SHCOMP,
-1.16%

HSI,
+0.44%

slipped after the country’s central bank left rates unchanged. European natural-gas prices
GWM00,
+4.45%

are on the rise again. Bitcoin
BTCUSD,
+0.86%

is trading at just over $20,000.

The buzz

Shares of Union Pacific
UNP,
-3.69%
,
Norfolk Southern 
NSC,
-2.16%

and CSX
CSX,
-1.05%

 are rising in premarket after the White House said it has reached a tentative railway agreement with unions. No deal by Friday would mean strikes and havoc for supply chains, grain markets and even the coming holidays. Read more here.

Apart from August retail sales, we’ll get weekly jobless claims, the Philly Fed and Empire State manufacturing indexes and import prices. Industrial production and business inventories will follow.

Vitalik Buterin, one of the co-founders of Ethereum, says the so-called merger is done, meaning the birth of a more environmentally friendly crypto. Ethereum
ETHUSD,
-1.57%

is up just a little right now.

A new lawsuit claims Tesla
TSLA,
+3.59%

has made false promises over Autopilot and Full Self Driving features. And move over Tesla, Apple
AAPL,
+0.96%

is now Wall Street’s biggest short bet.

Ericsson
ERIC,
-3.32%

ERIC.A,
-1.78%

ERIC.B,
-3.27%

is dropping after a double downgrade at Credit Suisse, who cited inflationary headwinds. Analysts lifted Nokia
NOKIA,
-0.40%

NOK,
-0.40%

to outperform, though the stock is barely moving.

Cathie Wood’s Ark Investment Management went on a dip-buying spree after Tuesday’s market meltdown, scooping up chiefly Roku
ROKU,
+0.44%
.

Opinion: Pinterest never considered itself a social network. Until now.

Patagonia billionaire Yvon Chouinard is donating his entire company — worth $3 billion — to the climate fight.

Best of the web

No U.S. shale rescue for Europe.

Turkey finds an extra $24.4 billion laying around.

Queue to pay respects to Queen is 2.6 miles long and counting.

The tickers

These were the top-searched tickers on MarketWatch as of 6 a.m. Eastern Time:

Ticker

Security name

TSLA,
+3.59%

Tesla

GME,
+1.01%

GameStop

AMC,
+1.95%

AMC Entertainment

BBBY,
+4.66%

Bed Bath & Beyond

HKD,
+311.78%

AMTD Digital

NIO,
-0.14%

NIO

AAPL,
+0.96%

Apple

APE,
+0.94%

AMC Entertainment preferred shares

AMZN,
+1.36%

Amazon

NVDA,
-0.02%

Nvidia

Random reads

Scientists try to teach robots comedic timing

Sausage, mozzarella, batter. Meet South Korea’s hot dog.

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