Wall Street Sell-Off: Veteran hedge fund founder adds to the uncertainty

Benchmark indices ended lower on Wall Street overnight but not before a major reversal from the highs of the day. The Dow Jones, at one point during the session, was up nearly 650 points. However, the index ended with cuts of nearly 400 points. The S&P 500 and Nasdaq paint a similar picture.

A combination of concerns surrounding AI valuations, dwindling hopes of the US Federal Reserve cutting interest rates and a sell-off in the crypto markets, all contributed to the fall. However, a Wall Street veteran may have added to those uncertain sentiments.

Ray Dalio, founder of popular hedge fund Bridgewater Associates, mentioned at an event that the AI-related spending spree is indeed forming a bubble in the market, something that Nvidia CEO Jensen Huang vehemently denied during the company's earnings call.

In an interview to CNBC, Dalio said that while a bubble is forming, there would be something needed to burst it as well. While monetary policy is unlikely to be that factor, it could come from higher wealth taxes, according to him.

“The picture is pretty clear, in that we are in that territory of a bubble,” Dalio said. “But we don’t have the pricking of the bubble yet.”

Despite acknowledging the bubble, Dalio believes that investors should not sell just for that reason. "Don't just sell because there is a bubble," the Bridgewater Founder stated, and added that looking at the correlations with the next 10 years of returns, being in such a territory generally delivers very low returns.

Dalio advised that market participants should look to diversify their portfolios through investments like Gold.

Nvidia and other AI-linked stocks saw a sharp reversal from their intraday highs and dragged the market lower with them. Thursday's sell-off took indices on Wall Street to the lowest level in two months.