Markets are weaker than US economy, Bridgewater’s Prince says

MARKETS have underperformed the US economy as fear of inflation hammers the prices of stocks and bonds, said Bob Prince, co-chief investment officer at Bridgewater Associates, the hedge fund management firm.

“The financial markets are much weaker than the economy,” Prince said in an interview with David Westin on Bloomberg Television’s Wall Street Week.

“That’s kind of the reverse of where we were for awhile when financial markets were stronger than the economy.”

Stocks and bonds tumbled this week amid concern about inflation and the rate-hiking policy of the Federal Reserve, which boosted its benchmark rate by 50 basis points, the steepest increase in 22 years.

The S&P 500 Index fell for its fifth-straight week and is 14 per cent below its Jan 3 all-time high. Bond prices declined as rates on the 10-year Treasury topped 3.12 per cent, the highest since November 2018.

US consumer inflation jumped to an annual pace of 8.5 per cent in March, the highest since 1981. April data will be published May 11.  

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Investors should diversify portfolios to include commodities, inflation-indexed bonds and stocks of companies with solid cash flows, as opposed to growth stocks where valuations were based on future potential earnings, Prince said. 

Ed Hyman, vice chairman and economist at Evercore ISI, who also appeared on Westin’s show, offered more conservative advice for risk-averse investors.

“I like cash,” Hyman said. BLOOMBERG