The dominant theme of 2025 is the victory of the US stock market, especially AI stocks. However, Ray Dalio, founder of Bridgewater Associates, holds the opposite view . He believes that the biggest investment story of 2025 is not in stocks, but in the collapse of currency value and the change in asset pricing benchmarks. Ray Dalio chooses not to review a single market or popular industry, but how the entire "money-debt-market-economy" machine has operated over the past year.
Although the stock market appears to be performing well, if the standard were changed from the dollar to the gold standard, the US stock market would actually have fallen by 28%. The dollar would have depreciated by as much as 39% against gold.
The biggest winner and loser in 2025: not stocks, but the value of money.
Dalio points out that the most undeniable fact in 2025 is that all fiat currencies are depreciating, just at different rates.
Taking the US dollar as an example, the US dollar in 2025:
- The yen depreciated by 0.3%.
- The RMB depreciated by 4%.
- The euro depreciated by 12%.
- The Swiss franc was devalued by 13%.
- It depreciated by as much as 39% against gold.
Gold is the world's second-largest reserve asset and the only major non-sovereign fiat currency. As a result, the best-performing major market in 2025 was not US stocks, but gold.
- Gold prices rose 65% in dollar terms.
- The S&P 500 rose 18%.
If converted to gold prices, US stocks fell by 28%.
Dalio emphasizes a principle that is often overlooked but extremely important:
When your currency of account depreciates, all assets calculated in that currency will appear to be overvalued.
Also an S&P 500:
- For USD investors: +18%
- For Japanese yen investors: +17%
- For RMB investors: +13%
- For euro investors: +4%
- For Swiss franc investors: +3%
- For gold investors: -28%
Bonds and cash: nominally safe, but actually eroded by inflation.
Dalio further points out that the essence of a bond is a promise to deliver currency in the future, and when the currency itself depreciates, the intrinsic value of the bond will inevitably be damaged.
10-year US Treasury bond yield in 2025:
- USD-denominated: +9%
- Japanese Yen Price: +9%
- RMB denominated: +5%
- Euro/Swiss Franc: -4%
- Gold price: -34%
- Cash performed worse
This also explains why overseas funds have little interest in dollar bonds and dollar cash (unless there is currency hedging). Dalio's outlook is quite conservative: approximately $10 trillion in debt is due for refinancing, and the Federal Reserve tends to keep real interest rates low. Long-term bonds are riskier than rewarding, and the probability of a further steepening of the yield curve is not low.
Did the 2025 US stock market bull run actually lose out to the rest of the world?
Even with its impressive performance in dollar terms, Dalio still emphasized:
In 2025, US stocks will significantly underperform non-US stock markets and gold.
- European stocks: +23% (relative to US stocks)
- Chinese stocks: +21%
- UK stocks: +19%
- Japanese stocks: +10%
- Emerging markets as a whole: +34%
Not just stocks, emerging markets:
- USD bonds: +14%
- Local currency bonds (USD denominated): +18%
There is only one conclusion:
Global funds are being reallocated, moving away from the United States.
Why are US stocks still rising? Strong fundamentals and gains not driven by a single sector.
Ray Dalio did not deny the potential performance of US stocks in 2025. The S&P 500 is projected to return approximately 18% for the year, driven by 12% earnings growth, a roughly 5% expansion in price-to-earnings ratio, and a dividend yield of about 1%. Notably, aside from the seven tech giants, the earnings of the remaining 493 constituent stocks also grew by about 9%, indicating that the rally was not solely supported by a single sector.
However, Dalio points out that this wave of surpluses and asset price increases largely stems from reflation policies and a decline in the discount rate, rather than structural improvements. In the expansion of profits, capital has taken a larger share relative to labor, leading to a significant discrepancy between the perception of inflation among asset holders and the general public.
He believes that this imbalance in distribution will exacerbate political polarization, and that future adjustments, whether through wages, tax systems, or regulations, could affect corporate profit structures, challenging current market expectations for continued profit expansion.
Valuation, risk premium, and future returns: Limited room for growth
In Dalio's model:
- Long-term expected return on US stocks: approximately 4.7%.
- Long-term bond yield: approximately 4.9%.
Equity risk premiums are low, and credit spreads have been compressed to a low point. In other words, in the future market, it will be difficult to generate returns through valuation expansion and liquidity premiums.
Ray Dalio: AI is in the early stages of a bubble.
Dalio believes that the market in 2025 cannot be understood in isolation from politics. He bluntly states that the Trump administration's policies are a highly leveraged capitalist gamble. Stimulus policies, tariffs, subsidies, and deregulation are essentially government-led capitalism. The result is a further widening of the wealth gap, with the top 10% of the wealthy class feeling no impact from inflation, while the bottom 60% are struggling to cope with the cost of living.
Dalio predicts that currency value and affordability will become the biggest political issues. The left-right divide is likely to intensify in the 2026 midterm elections and the 2028 general election. The conflict between wealth and money will directly impact the market.
Dalio places 2025 within his long-proposed Big Cycle framework, believing that:
- The world is shifting from a multilateral order to unilateral hegemony.
- Rising military spending, widening deficits, and increased demand for gold. AI is in the early stages of a bubble.
- Climate change continues, but political responses are divided.
These intertwined forces are reshaping capital flows and the international order.
This article, "Stock Market Hits Record Highs, Why Are Most People Poorer?" by Ray Dalio, discusses the market illusion caused by fiat currency devaluation . It first appeared on ABMedia (a ABMedia ).
