Finimize - 🛁 Are we still in a bubble, Ray Dalio?

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Today's big stories

US consumer price rises barely slowed down last month
Our analyst has looked into whether you should buy the dip based on Ray Dalio’s “bubble indicator” – Read Now
Toyota gave a grim outlook for this year

Emo Trip

What’s Going On Here?

Data out on Wednesday showed that US consumer prices rose more than expected last month, even though the Federal Reserve thought this “doom and gloom” thing was just a phase.

What Does This Mean?

Not to bring you down or anything, but woe is us: airfares surged 33% last month from the same time last year, food by 9%, and shelter by 5%. That all contributed to a higher-than-expected increase in overall consumer prices of 8.3%. And sure, this marks a slowdown from March’s 8.5%, which has some economists arguing that we’re probably past peak inflation. But equally, it highlights that any dropoff in prices is bound to happen painfully slowly. And we’re going to feel every bit of it, with inflation-adjusted wages falling 2.6% last month from the same time in 2021. Existence is meaningless.

Why Should I Care?

For markets: Are US stocks falling out of favor?
Investors have already had to deal with one of the worst starts to the year for stocks since 1939, but this bleak data suggests things could get much worse. It might force the Federal Reserve to raise interest rates quicker than expected to make more of a dent in inflation – even if it comes at the expense of economic growth. That might be why some traders are now betting on a fourth-straight hike of 0.5% in September, and why some analysts reckon the US stock market – down 17% so far this year – could fall as much as 20% further.

Zooming out: Are Chinese stocks back in favor?
America stands in stark contrast to China, where consumer prices only rose 2.1% last month compared to the same time in 2021. That could leave room for its central bank to, say, slash interest rates, which should encourage spending and boost economic growth. And with Covid cases showing signs of tailing off, investors seem to see value in the country once again: its stock market rallied on Wednesday.

You might also like: How to survive the post-rate hike apocalypse.

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Analyst Take

Is Ray Dalio’s “Bubble Indicator” Telling You To Buy The Dip?

Reda Farran, Analyst

What’s Going On Here?

Ray Dalio – the billionaire founder of the world’s biggest hedge fund – is known for many things.

But his “bubble indicator” might be his masterpiece: it’s based on six questions that help establish whether we’re in an environment of unsustainably high prices.

It was sounding the alarm about US stocks early last year, but here’s the good news: it’s now suggesting we’re not in a bubble anymore.

As for whether that means we should all scramble to buy the dip, that’s a different matter entirely.

So that’s today’s Insight: why the bubble indicator says we’re not in a bubble, and whether you should buy the dip because of it.

Read or listen to the Insight here

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Find Out More