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US stocks open higher but Dalio warns of rising recession risks

Summary:

  • US indices rising at the start of the week 
  • US100 leading the gains. US500 and US30 also both higher by more than 1%
  • Dalio warns of rising recession risks in the next 18-24 months

Late on in Friday’s session, US markets staged an impressive comeback with the US500 managing to end the day in the green after surviving a retest of the previous low at 2531. Today’s trade has seen the market attempt to move higher again and already the index is above Friday’s highs as the market seeks to recover some of the damage done during the recent spate of selling. While The US500 is rising today, the gains seen for itself and the US30 are both being outstripped by the US100 which is currently the biggest gainer amongst American indices. 

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 American indices are enjoying a bright start to the week with the US100 the best performer. Source: xStation

The big question for traders now is whether the recent declines are over or if there could be another flush lower. Comments from Ray Dalio, the founder of one of the largest hedge funds in the world (Bridgewater Associates) make for interesting reading. Dalio believes that the risks of a recession in the next 18-24 months are rising, writing that "recent spurts in stimulations, growth, and wage numbers signaled that the cycle is a bit ahead of where I thought it was."

He blames government stimulus moving along the cycle and that the deficits from the tax cut, the latest budget and the infrastructure plan that will be announced today are spooking the bond market. "There is a whole lot of hitting the gas into capacity constraints that will lead to nominal rate rises by the markets" writes Dalio. Just a couple of weeks ago at the Davos conference, Dalio was warning of a "melt-up" in the stock market which he believed could see a strong move to the upside before a larger correction.  

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 The US500 has held support at 2531 and this is a key level to keep an eye on going forward. Source: xStation

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