Top of Mind: Dissecting the Market Disconnect (Exchanges at Goldman Sachs, 22 min listen)
Bridgewater Associates’ Ray Dalio and Goldman Sachs’ Jan Hatzius discuss what's causing the divergence between falling bond yield and rising equity prices. Dalio believes this recent divergence makes sense. As interest rates fall, stock value has to rise due to the present value of future cash flow increasing. He argues this is a temporary and non-sustainable positive, as there are limitations on how low interest rates can go. Hatzius asserts that concerns relating to growth are overstated. He claims that despite levels not being as high as in 2017 and 2018, growth is still strong, agreeing that rate cuts are not even necessary in the US. He also believes that over stimulating the economy can push the unemployment down to a level that is unsustainable over the long term, in effect causing a recession.
Why does this matter? Although the speakers explore contrasting opinion regarding US growth prospects, both in their own way signal caution amid rising global uncertainty – and that’s worth regarding. Where Hatzius is overweight on defensive stocks, Dalio calls for intrinsic diversification in assets like Gold and Chinese assets to reduce risk.
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)
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