Investors remain optimistic about equity markets despite the worries that have arisen, wrote Oaktree’s Howard Marks in the takeaways from Quarterly Letters.
The investment managers at Oaktree Capital Management believe that the investment environment is undergoing a dramatic change with the era of easy money over and new asset classes emerging as outperformers. Tracking this change, the Co-Chairman of the investment management firm wrote that a tug-of-war that decides asset prices is unfolding in the market, and that the sideways market is a sign that positive sentiment seems to be winning.
“Investors have to believe things will work out and that their skill will enable them to wisely position capital for the future. Equity investors have to be particularly optimistic, as they have to believe someone will come along who’ll buy their shares for more than they paid. My point here is that optimists surrender their optimism only grudgingly, and phenomena such as cognitive dissonance and self-delusion permit opinions to be held long after information to the contrary has arrived. This is among the reasons why they say of the stock market: “Things can take longer to happen than you thought they would, but then they happen faster than you thought they could,” he wrote.
“Today’s sideways or “rangebound” market tells me investors possess a good amount of optimism despite the worries that have arisen. In the coming months, we’ll find out if the optimism was warranted,” he added.
According to Marks, the "unusually easy time" that investors had for a long period of time is now over with the end of accommodative monetary policy.
“There clearly isn’t much room for interest rate declines from today’s levels, and I don’t think short-term interest rates will be as low in the coming years as in the recent past. For these and other reasons, I believe the years ahead won’t be as easy,” he wrote.
But he conceded that there is no concrete evidence to support this believe because the economy and markets are still in transition.