Bridgewater expects up to 25% drop in stocks, bonds on Fed tightening- Bloomberg
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Both stocks and bonds could end up falling up to 25% as the Federal Reserve's tightening cycle isn't being priced in, Greg Jensen, the co-chief investment officer of Ray Dalio-founded hedge fund Bridgewater Associates, told Bloomberg Television in an interview Thursday. 
âIn aggregate, the asset markets will decline from 20% to 25%,â Jensen warned, as quoted by Bloomberg. If his prediction comes to fruition, then investors won't be able to avoid the downturn, he added. 
Of course, stocks (SP500), especially bonds (NASDAQ:TLT), have already fared poorly since the beginning of 2022, sliding 13.2% and 22.2%, respectively, against a backdrop of mounting recession fears, tighter financial conditions and a material slowdown in the global economy, as seen in this chart. 
"Historically, such large drawdowns often make for a good time to buy," said Dan Ashmore, investing expert at Invezz. 
Jensen, meanwhile, believes the Fed's historically aggressive interest-rate increases will eventually pull down inflation as well as economic growth, but consumer prices will still stay above the central bank's 2% target.
Five-year, five year forward inflation expectation, for example, which measures implied inflation over the five-year period that starts five years from now, is standing at 2.45% vs. the April 21 peak of 2.67%, according to the St. Louis Fed's FRED database. 
Of note, the Fed, in the midst of its quantitative tightening, is not selling its Treasury holdings outright, but instead it's letting Treasuries mature to shrink its nearly $9T balance sheet. Ultimately QT removes bank reserves from the system and thus the private sector absorbs a bigger supply of bonds. Just like in quantitative easing, "money" isn't a variable in the equation. The process is nothing more than an asset swap hence the composition of commercial banks' balance sheets change. 
During the second quarter, Bridgewater disclosed new stakes in Rivian Automotive (RIVN), Amazon (AMZN) and Sea (SE), but exited Alibaba (BABA) and JD.com (JD). Bloomberg reported on August 17 that the fund walked back from its $10.5B bet against European companies. 
Earlier this week, (August 24) Guggenheim's Scott Minerd expects peak nearing in Treasury yield as inflation potentially peaked.