Laurence D. Fink and Howard Marks joined the likes of Bill Gross and Jeffrey Gundlach cautioning that buyers may be ignoring sluggish economic growth and Britain’s departure from the European Union as they look to put their money somewhere, anywhere, amid low interest rates.
“If we don’t see better than anticipated corporate earnings, I think the rally will be short-lived,” Fink, 63, who runs the world’s largest asset manager as chief executive officer of BlackRock Inc., said in a Bloomberg interview Thursday.
A run-up in global stocks has added more than $4 trillion to the value of equities worldwide since June 27 on speculation central banks in major economies will boost stimulus. It’s been a swift turnaround from the doom-and-gloom surrounding global equities on June 24, the day after the British vote, when stocks lost $2.5 trillion in market value.
On the fixed-income side, the speculative-grade bond market that was accompanied by bearish calls coming into 2016 has been on a tear, with gains at 12% for the year. But the global market rally, underpinned by low interest rates around the world, carries dangers, Howard Marks, co-chairman of Oaktree Capital Group LLC, said in a telephone interview.
“We are living in a difficult, low-return world that has been ignoring risk incidents,” Marks said. “When the market shrugs off its problems, it is not a plus, as that permits problems to accumulate. Up-cycles don’t go on forever.”
Marks said investors who insist on jumping into less-liquid assets need to be willing to ride out the rough times.
Await Heartburns
“When you go into risk assets and they go through a tough period, there will be heartburn and price declines,” he said. “If you are going to need the money in the short term, you shouldn’t put it into potentially illiquid assets.”
Janus Capital Group Inc.’s Gross and DoubleLine Capital LP’s Gundlach said sovereign bonds, with yields at record lows, were too risky. Gundlach said in a webcast earlier this week that there’s a “mass psychosis” among investors seeking yield.
Fink, whose firm cut about 3% of its workforce earlier this year, has said the Brexit vote will weaken global economic growth and makes another rate increase by the US Federal Reserve unlikely this year.
BlackRock on Thursday reported a 3.7% decline in second-quarter earnings as clients shifted money from stocks to lower-fee fixed income and cash investments.
“Our clients are facing unprecedented challenges as they attempt to navigate the current investment environment,” Fink said in the firm’s earnings statement.
