“High yield bonds are at 7%, other strategies are at 7%, maybe as high as 8%, private credit at 9-11%,” he noted, reinforcing the case for fixed income as an alternative to equities.
He noted that while the current Fed funds rate stands at 4.5%, its historical average over the past 70 years has been around 4.9%.
According to Marks, the prolonged low-rate environment from 2009 to 2021 made credit investments unattractive. However, with rates rising, fixed-income investments are offering compelling returns.
Marks also referenced Goldman Sachs’ recent projection that the S&P 500 will return just 3% annually over the next decade and then pointed to data from JP Morgan, stating that when the S&P 500 is bought at a P/E ratio similar to today’s 22+, historical returns over the following decade have ranged between 2% and -2% per year, “no exceptions.”
With the equity market currently buoyed by the “Magnificent 7” stocks, Marks questions whether these high valuations signal a new era or if they are unsustainable. “Are they overpriced or is it a new era and are they worth it?” he asked.Also read: Market correction: Time to accumulate quality stocks? Motial says yes
While equity markets may struggle to deliver their historical 10% annual returns in the coming years, Marks emphasizes that returns from credit are quite competitive and dependable.
“Most people would say that from the S&P, you’re not going to get the historic return of 10% a year for the next decade. You will get something less and if that’s true, then the returns from credit are quite competitive and dependable,” Marks stated.
As a result, he believes that investors may need to recalibrate their portfolios to reflect this new rate environment, balancing between equities and high-yield fixed-income opportunities.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
