Ray Dalio: Why the Stock Rally and Bond Sell-Off Is “Totally Logical”
attends the New York Times 2013 DealBook Conference in New York at the New York Times Building on November 12, 2013 in New York City.

At the interview with Bloomberg at the World Economic Forum in Davos last week, Ray Dalio expressed his view on the stock rally and the accompanying bond sell-off as being “totally logical”.

Trumpian policies and campaign pledges have raised positive market expectations on US growth and inflation. Consequently, equities have rallied on the expectation of growth, and bonds have sold off on inflation expectations sending yields up, with President Trump entering the White House.

What else is boosting the stock markets?

Trump has been propounding corporate tax cuts and tax law changes in the US economy (SPY) (IWM) (QQQ) all through his election campaign. His protectionist views toward US manufacturing hails “buy American, hire American.” His intent to renegotiate trade deals to America’s benefit should bring excitement to investors in funds tracking the industrial sector in the U.S. Some of these are the Industrial Select Sector SPDR Fund (XLI) and the SPDR Dow Jones Industrial Average ETF (DIA). These US exchange-traded funds have soared 9.6 % and 8.6%, respectively, since Donald Trump won the US presidential elections on November 8 last year. Comparatively, the broad-market benchmark S&P 500 index tracking SPDR S&P 500 ETF (SPY) gained 6.4% during this period.

Dalio sees rise in business investment in the US

According to Dalio, we now have a more protectionist US border, with a more business-friendly environment and lower taxes, which means “the United States is a very attractive place for businesses to be.”  Consequently, we may begin to see a rise in capital investment happening amongst U.S. businesses, who were earlier weighing whether to expand their businesses in the US or elsewhere.

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