According to the Financial Times, the Co-CIO of the world’s single largest hedge fund, Bridgewater, is warning of a potential broad-market slowdown at the hands of the US Federal Reserve, whose interest rate increases could knock the top off of global equity markets and constrain economic growth from “hot” to just “warm”.
Key highlights
According to Bridgewater’s Bob Prince, current market turmoil is a result of broader investors realizing that strong economic growth a record-high corporate earnings are very likely a peak in the economic cycle, with the (potential) ensuing decline fueled by rising interest rate hikes and fading benefits from tax cuts, specifically major corporate tax cuts within the US in recent years.
Prince, who is responsible for co-managing Bridgewater’s $160 billion in investor assets, is cautioning that tightening monetary policy adjustments could spark downside pressure in equities, though not quite calling for an outright downturn in broader markets.
“A lot of optimism about future earnings growth has been baked into equity valuations. But we are at a potential inflection point where the economy is moving from hot to mediocre,” Mr Prince said in an interview. “This week could fade into history and we won’t remember it, but we are clearly shifting from an era of monetary easing to monetary tightening,” he said. “If that [a growth inflection point] is what is happening, then this won’t be a one-week event.” – The Financial Times
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