{"id":12891,"date":"2023-12-20T15:48:18","date_gmt":"2023-12-20T15:48:18","guid":{"rendered":"https:\/\/zacksim.com\/blog\/?p=12891"},"modified":"2024-01-10T17:20:25","modified_gmt":"2024-01-10T17:20:25","slug":"the-fed-pause-and-what-it-means-for-2024-investor-strategies","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/the-fed-pause-and-what-it-means-for-2024-investor-strategies\/","title":{"rendered":"The Fed “Pause” And What It Means For 2024 Investor Strategies"},"content":{"rendered":"\n

Richard S. from Bend, OR asks:<\/em> Good Morning Mitch, I\u2019m sure many investors are looking ahead to the new year and thinking about different allocation ideas. My question is specifically about how the Federal Reserve and rate cuts could factor into your expectations for what performs well and what doesn\u2019t. I look forward to your response and wish you a happy holiday season.<\/p>\n\n\n\n

Mitch\u2019s Response:<\/p>\n\n\n\n

Thanks for writing! Thinking in terms of the Federal Reserve, 2023 was quite a year for investors who have been waiting for the arrival of higher-yield, risk-free options in portfolios. Yields on everything from long-duration Treasuries to money market funds, and even short-duration Treasuries pushed solidly higher, especially over the summer months.<\/p>\n\n\n\n

Investors took notice and also took action. According to Federal Reserve data, money-market funds and high-yield savings accounts saw big inflows in Q2, with $651 additional dollars compared to Q2 2022. For many investors, a risk-free return of 4% to 5% was more than acceptable, especially given the paltry yields of the previous decade.1<\/sup><\/p>\n\n\n\n

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But I think it\u2019s important for investors to remember that while 4% or 5% seems quite attractive \u2013 especially relative to a prolonged period of near-zero risk-free yields \u2013 it\u2019s the real return that matters most. In other words, a risk-free return should be adjusted for inflation in order for an investor to fully gauge how well they did. Inflation has come down substantially over the past twelve months but is still running at 3% year-over-year. As seen in the chart below, that means the inflation-indexed yield on a 10-year Treasury bond is closer to 1.5%, which isn\u2019t so attractive.<\/p>\n\n\n\n

Yield on 10-Year Treasury Bond, Adjusted for Inflatio<\/strong><\/em>n<\/p>\n\n\n\n

\"\"
Source: Federal Reserve Bank of St. Louis3<\/sup><\/strong><\/em><\/figcaption><\/figure>\n\n\n\n

In your question, you ask what the Federal Reserve\u2019s \u2018pause\u2019 and potential rate cuts in the new year could mean for asset allocation ideas. We\u2019ve already started to see some impact in both the fixed-income and equities markets, with both rallying strongly over the past few weeks. Remember, when bonds rally, it means prices are rising but also that yields are falling. For fixed-income investors with long time horizons, hopefully, you were able to lock in higher yields from the summer months. But otherwise, it probably makes sense to be nimbler in fixed income, investing on the shorter end of the curve, especially given our expectation that interest rates could be lower in the future.<\/p>\n\n\n\n

From an equity perspective, a Fed \u2018pause\u2019 and the months leading up to rate cuts have historically been good for stocks. Since 1990, stocks (S&P 500) purchased six months after the Fed\u2019s first-rate cut delivered an annualized average of 15%. While that\u2019s quite good, buying stocks before the rate cuts \u2013 or said another way, during the \u2018pause\u2019 \u2013 paid off even more, delivering a 21% annualized average return.<\/p>\n\n\n\n

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You\u2019ll get our ideas on:
\u2022 How market volatility can \u201cshake up\u201d complacent investors
\u2022 Potential bargains that may be uncovered through turbulence
\u2022 Why volatility may help prevent overheating and market \u201cbubbles\u201d
\u2022 What history shows us about opportunities for steady investors in turbulent markets
\u2022 Plus, more ways you may be able to benefit from a volatile market<\/p>\n\n\n\n

If you have $500,000 or more to invest, download our free guide today by clicking on the link below.<\/p>\n","protected":false},"excerpt":{"rendered":"

Higher yields drove big inflows into money-market funds and high-yield savings accounts\u2014but how will the Fed’s pause impact allocations next year?<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[66,71],"tags":[],"class_list":["post-12891","post","type-post","status-publish","format-standard","hentry","category-mitchs-mailbox","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/12891","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=12891"}],"version-history":[{"count":2,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/12891\/revisions"}],"predecessor-version":[{"id":12894,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/12891\/revisions\/12894"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=12891"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=12891"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=12891"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}