Congress recently passed significant fiscal stimulus measures that lower taxes and raise federal spending while U.S. economic indicators have remained healthy. Despite the supportive macro backdrop, markets have moved with considerably more hesitance this year than in 2017.
As shown in the chart, year-to-date returns across major asset classes reflect today’s uncertain conditions. Compared to strong positive returns in 2017, most major asset class returns this year have been relatively flat or negative.
At approximately 2.1% year to date, senior secured loans are currently outpacing investment grade and high yield corporate bonds, while U.S. stocks are down nearly 1% in 2018 and have been stuck in a relatively narrow trading range since mid-March.1
Recent weakness within the stock market may be taking a toll on investor sentiment. According to the American Association of Individual Investors, only 28% of investors believe the stock market will be higher in the next six months while 41% are neutral on the market’s direction.2
As observed this year, investor sentiment and market conditions can change rapidly. In periods when markets lack conviction, investors may be well served by seeking varying sources of non-correlated returns within their portfolio.
Private credit has increasingly become the preferred source of financing for PE sponsors, with direct lending volume jumping 60% over last year’s level.
