The Blubber

Cash is now paying a higher yield in interest than the stock market does in earnings, per Bloomberg.

The fixed-income market has experienced greater volatility than stocks, and according to one metric, bond price fluctuations are expected to surpass those in the equity market by the most in over 18 years. This increased volatility presents trading opportunities, with the downside limited to a 5% yield until maturity.

Alternatively, for those seeking more flexibility, cash has become an appealing choice, leading more investors to allocate their funds there. A glance at the yield of six-month Treasury bills highlights the attractiveness of cash. For the first time in this century, cash provides a higher yield through interest than the S&P 500 offers in earnings. Moreover, with cash, you receive actual money in hand, eliminating the reliance on accountants to accurately calculate corporate profits.

As a result, it comes as no surprise that global fund managers, surveyed by Bank of America Corp., are increasing cash allocations in anticipation of weaker economic growth in the coming year. The survey, part of BofA's influential monthly assessment of fund managers, was conducted from October 6 to October 12 and included 259 participants with assets under management totaling $664 billion.

BofA strategist Michael Hartnett noted that the survey's broadest sentiment measure, which considers cash positions, equity allocation, and economic growth expectations, dropped from 2.2 to 1.7. Concurrently, cash levels as a percentage of assets under management have risen to 5.3%, signaling a "buy" signal on BofA's contrarian market-timing system. What does this signal mean?

Since 2011, when a "buy" signal occurs, indicating that pessimism toward stocks is unsustainably high due to elevated cash levels, the S&P 500 has seen returns of 2% in the following two months, 4% in the next three months, and 7% in the subsequent six months. Remarkably, this performance is realized while the stock market remains within 5% of its annual peak.

JPMorgan suggests that by incorporating a 25% allocation to alternative investments, including private equity, infrastructure, real estate, and commercial mortgage loans, investors can boost their annual returns by an additional 0.6 percentage points over the next decade while mitigating risk. In dollar terms, this translates to a $100 cash investment growing to just $133 in ten years. In comparison, the same amount invested in a conventional 60/40 portfolio would grow to $197. The addition of alternative investments to the mix would increase this figure to $208.