Ray Dalio says Fed tightening won't derail bull market, and here's what he finds attractive now

Published Thu, Jan 6 20224:16 PM EST

Bridgewater Associates' Ray Dalio said the Federal Reserve won't take it too far and hurt the economy when it tightens monetary policy. The billionaire investor broke down what he finds attractive in the market right now. "We're in a situation that the raising of interest rates and the tightening of monetary policy begins the process. In the third year of the cycle, as we're in, that normally is not enough to send the cycle down," the founder of the world's biggest hedge fund said Thursday on CNBC's " Closing Bell ." The central bank has signaled it could become even more aggressive than expected about tightening policy to tame down surging inflation. Central bankers indicated at their December meeting that they expect to hike rates and taper asset purchases soon, adding they could be gearing up to reduce their balance sheet. "It could send financial asset prices lower, but I would expect that if you understand the short-term cycle, this is typically a seven-year type of cycle in terms of expansions and recessions," Dalio said. "It's the beginning of the testing of the brakes." The Fed's hawkish pivot triggered a big sell-off in growth-oriented technology stocks this week, as investors weighed the risk of rising rates. Tech companies are seen as sensitive to rising yields because increased debt costs can hinder their growth and can make their future cash flows appear less valuable. Dalio added that the speculative trading activity in some tech stocks also made them vulnerable to a pullback. "They've experienced in many cases a bubble-type of behavior, so they're more sensitive than ... the meat and potato type of basic company type stock," the famed investor said. "So that type of behavior, this is not an environment that's particularly conducive to those types of investments." Dalio said investors should take a look at gold and Treasury Inflation-Protected Securities (TIPS), which could offer some hedge against rising price pressures. The hedge fund founder said inflation index bonds haven't been given nearly enough attention by investors.

Ray Dalio, Bridgewater's Co-Chairman and Co-Chief Investment Officer speaks during the Skybridge Capital SALT New York 2021 conference in New York City, U.S., September 15, 2021.

Brendan McDermid | Reuters