Good morning,
The bad news? The stock market is going sideways. The good news? There are finally some decent alternatives to stocks, according to Ben Carlson. His new piece is included in Fortune’s finance team’s new Quarterly Investment Guide which you can read here.
Carlson argues that we're in a new era. “Throughout much of the 2010s, the financial markets were in a TINA (there is no alternative) environment,” he writes. “The Federal Reserve held short-term interest rates near 0% for much of the decade, and bond yields were paltry compared with the previous 50 to 60 years.”
But following one of the Fed’s “most aggressive interest rate hiking cycles in history to combat the highest inflation rates in 40 years, a TINA is no longer,” Carlson writes. “There are now plenty of alternatives for investors, and they are relatively safe choices. You can now find yields in the 4% to 5% range on money-market funds, CDs, savings bonds, online savings accounts, and boring old Treasury bills.”
Carlson points out that for those in search of higher yield for their cash or more stable parts of their portfolio, this is a welcome development. However, “inflation remains elevated so the real yields aren’t nearly as juicy as the nominal levels, but I’m not sure many retirees or fixed-income investors care considering how low yields were for the past decade-plus,” he writes.
He also throws cold water on the idea that higher interest rate environments are always terrible for stocks. “This makes sense in theory,” he writes. “A higher risk-free rate should mean lower valuations, a higher hurdle rate to accept risk and lower expected returns for stocks. But financial market theory doesn’t always translate into the real world when it comes to the financial markets.”
Going back decades, Carlson looked at the average 10-year U.S. Treasury yields, the average three-month T-bill yields, and the S&P 500 annual returns. He finds that the highest average yields occurred in the 1980s, which was also one of the best decades ever for stocks.
You can read the full story here.
And check out our Quarterly Investment Guide for tips on the best money market funds and more.
Have a good weekend. See you on Monday.
Sheryl Estrada
sheryl.estrada@fortune.com
