Ray Dalio Warns Rising Bond Yields Could Weaken Support for Stocks

Ray Dalio, the founder of Bridgewater Associates, says global stocks are becoming more vulnerable to rising bond yields.

Stocks have held up partly because company earnings made them look more attractive to investors than bonds, but that advantage is shrinking as share prices and bond yields rise.

US government bond yields are near highs not seen for decades, amid large government budget deficits, persistent inflation and growing demand for funding for AI investment.

Dalio says investors should watch companies’ free cash flow, the money left after operating costs and investment, as well as their profits.

He expects profits may improve even as free cash flow worsens, because spending on technology and AI infrastructure can absorb large amounts of cash.

He is not predicting an immediate fall in profits or a stock-market correction, but says financial conditions are beginning to tighten.

Dalio expects pressure on global bonds to continue as governments and companies compete to borrow, which could eventually lead to less lending and spending and weigh on economic activity and markets.