Ray Dalio: U.S. Stock Market Shows No Signs of Bubble

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Investor Ray Dalio, founder of Bridgewater Associates, one of the world’s largest hedge funds, has analyzed the U.S. stock market and concluded that it is not in a speculative bubble. Dalio evaluated various criteria including valuation, sentiment, new buyers, and unsustainable conditions in his assessment.

According to Dalio, when he applied these criteria to the U.S. stock market, even the parts that have gained the most media attention do not appear to be overly inflated. In a recent LinkedIn post, he stated, “When I look at the U.S. stock market using these criteria, it – and even some of the parts that have rallied the most and gotten media attention – doesn’t look very bubbly.”

Dalio acknowledged that certain stocks, known as the “Magnificent Seven,” which have experienced significant growth due to the buzz around artificial intelligence, might be slightly expensive. However, he emphasized that they are not in a full-blown bubble. Dalio also discussed the potential for a correction in these stocks if generative AI fails to meet the high expectations currently priced into them.

To illustrate his point, Dalio compared the stock trajectory of Nvidia, a prominent player in artificial intelligence, with that of Cisco during the dot-com bubble in the late 1990s. Although their price movements were similar, the underlying cash flows told a different story. Nvidia’s two-year forward price-to-earnings ratio is approximately 37, whereas Cisco’s multiple skyrocketed to 100 during the internet bubble.

Dalio pointed out that the market during the dot-com bubble was pricing in far more speculative and long-term growth compared to what we see today. This suggests that the current stock market is not experiencing the same degree of excesses.

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In conclusion, Ray Dalio’s analysis indicates that the U.S. stock market does not exhibit the characteristics of a speculative bubble. Although certain stocks may be slightly expensive, there is no indication of a widespread market bubble. Investors should remain cautious but not overly concerned about the current state of the stock market.

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