Let me start with you on the equity side.
Alice, I was a little surprised that equities held up so well considering all
the turmoil. Look, I think there's this view out
there that equities are out to lunch and I'm kind of asleep at the switch and I
don't think that at all. I think the market reaction was pretty
rational. I think if you look at it from a top
down perspective, despite everything we've just gone through in the month of
March. If you look at economic forecasts, if
you look at earnings forecasts, they're still anticipating the damage to be
contained in 2023 and 2024 to be a recovery year.
And we know that equity investors are ready to kind of move on from 2023 and
look ahead. If you look at it bottom up in terms of
what it's actually been doing, the heavy lifting, it's technology.
I think investors are starting to think about a sluggish growth environment
going forward. Tech normally works well then.
But I think one thing we know is that whatever you thought the Fed was going
to do prior to SBB, your expectations have been pulled in.
So I think markets are still trading the pause.
They're trading the ultimate return of cuts.
And technology stocks tend to be one of the best performing sectors after both
of those. So I think it's quite rational.
So, Julian, you manage an awful lot of assets at Goldman Sachs and equities,
but going well beyond equities. What are you seeing in equities?
It seemed pretty solid throughout the day.
What are you seeing in bonds where you're talking to seeing alternative
investments if all on the equity side, it is kind of extraordinary.
If you look back on the events of the last month and here we are, we're ending
the month up, up 3 or 4 percent, if you'd known at the beginning of the
month like the events that were going to unfold.
I'm not sure you would have predicted that.
You know, what we're seeing right now is know on the alternative side, continued
demand and interest in alternative asset classes, you know, given the volatility
and uncertainty of the environment. So I would say private credit, private
real estate are still attracting a lot of interest.
We're still seeing sluggishness in terms of interest in in private equity and
growth equity. But the more kind of yielding income
producing assets are attracting people because of the low of the higher base
rate environment. So the actual nominal yield on these
asset classes is interesting to investors.
Certainly the turmoil in the banks, Julian actually helped the bonds in the
sense that people rushed into bonds. They wanted to buy more bonds because
they were so uncertain of where we were going.
I think there were two things. First, the flight to quality generally
see saw money moving out of weaker banks into stronger banks from a from a
deposit perspective. You also saw very significant fund flows
into money market funds. And we saw as a matter of public record
fifty two billion dollars of flows into our money market funds in a two week
period. Just example of people looking to really
move their money out of again, weaker banks into more diversified risk.
Also seeing people moving into bonds and other
income producing assets. And then I would say
again, like pushing out a little bit of duration.
Now, an expectation that wherever I agree with Laurie's point, whatever you
thought the path of rates was going to be, that the peak rate and the time
horizon in which rates start to roll over us probably come in because of the
dampening effect that this has happened having on the economy.
So if in fact, in the bond situation, people like this safety, relative safety
or bond, is there an equivalent in equities are you seeing because of some
of the server turmoil with the banks and still uncertain about the economy?
Are there certain equities that people tend to go to when they are a little
unsure of the future? There are and you know, things like
utilities, health care, consumer staples, you know, are tend to be where
people go, big caps in general. So we've seen small caps underperform.
But technology stocks, interestingly, over the last I would say like five or
six years have become another safe haven.
And we know that areas like utilities, consumer staples have been highly
overvalued because people were really pushing into them last year when they
were moving out of tech. And so I actually think, you know, it's
interesting, tech had already been, I think, largely depressed last year.
So people feel comfortable now coming back to it as more of a safety trade
during one of the things we will talk about as a possible credit crunch react
to actually what happened with the banks.
Are people providing for that? Are there ways to provide for that or do
you see a credit crunch around the corner?
Sure. Look, I think the very acute near-term
issue has been taken off the table. I think the policy actions to stabilize
the bank liquidity around the banking system has proven to be effective.
But I do think there are a few things that are fairly certain for the sub 250
billion dollar banks that have been subject to less stringent capital and
liquidity requirements. They're going to be required to hold
more capital. They're going to be required to hold
more liquidity. The cost of they're going to charge for
their borrowers is therefore going to go up.
They're also going to be subject to greater regulation.
So I think credit availability is going to become tighter.
Whatever you thought it was going to be, it's certainly going to become tighter
as result of these actions. And that is going to impact certain
areas of the economy, particularly, I think, commercial real estate, which was
already feeling very, very fragile. And this is going to be just further add
to the pain.