The US stock market just erased $2 trillion in value, and one of the world’s most influential investors says the warning signs were already flashing.
In a new CNBC interview, billionaire Ray Dalio says the market is inflating into a bubble as investors rush in and confuse market excitement with long-term value.
He notes that today’s stocks are being priced as if the trajectory for the next two and a half decades is guaranteed.
“There is definitely a bubble in markets. Bubbles are when there is a lot of creation of wealth from various ways, like you decide you are going to sell $50 billion worth of stock and value it at a trillion dollars, or you have multiples like that, and then you create the wealth that way.”
He points to a century of data that puts today’s conditions near historical danger zones. Dalio notes that today’s conditions closely resemble the market environment witnessed in the late 1920s and early 2000s.
“And so if you take who has exposures, how much leverage is used, and so on, this is about 80% into a bubble that was 100% would have been 1929 and 2000…
So you have such a small percentage of the economy, such a small percentage of the American population, in terms of wealth and so on, concentrated, so concentrated, and everybody in it, actually, and in a leveraged way. In various ways, it has leverage.”
Dalio’s comments come as Nvidia (NVDA) posted a blockbuster quarter, beating consensus estimates on earnings and revenue while raising Q4 guidance.
Earlier this month, former Morgan Stanley chief strategist Rucin Sharma warned that AI spend accounts for 4% of US GDP growth this year, and 80% of stock market gains were driven by AI stocks, with the richest 10% Americans owning 90% of the market.
The S&P 500 is down 1.56% on the day, wiping out $2 trillion in market cap in just one trading session.
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