JPMorgan (NYSE:JPM)'s asset-management unit, on Wednesday, advised investors to diversify their assets under long-term strategies, cautioning that cash-holding investors may miss out on market rallies. The traditional portfolio could yield a 7% annual return over the next decade or so, according to the firm. This advice comes as cash-like Treasury bills have seen strong performance due to the Federal Reserve's aggressive rate-hiking cycle that began in early 2022.
Despite bond losses and stock slumps, investors are increasingly drawn to cash due to ultra-short-term Treasury bills yielding over 5%. Monica Issar from J.P. Morgan Global Wealth Management, however, warned that cash doesn't rally. For instance, three-month T-bills BX:TMUBMUSD03M were yielding 5.5%, contributing to the iShares 0-3 Month Treasury Bond ETF SGOV seeing a total return of around 4% this year.
The U.S. stock market has remained resilient this year despite Q3 losses, with the S&P 500 index rising around 13% in 2023 after an August-September slump. However, the yield increase has negatively impacted equities and long-term bonds, with iShares 20+ Year Treasury Bond (NASDAQ:TLT) ETF TLT posting a 12.2% loss this year.
The S&P 500 is recovering from a significant drop last year, its worst performance since the global financial crisis of 2008. Despite being up this year, it has slumped over 2% in the past month. Stocks and bonds have only sold off three times in the past 50 years: during periods of inflation and energy crisis, and recently when the longest period of disinflation in modern history ended.
On the international front, shares of iShares MSCI ACWI ex U.S. ETF ACWX have risen 3.5% this year after falling 18.2% last year. Other developed markets offer attractive returns compared to U.S. firms, with Europe and Japan providing competition. However, skepticism about China has moderated the outlook for emerging-market stocks.
Ten-year Treasury rates BX:TMUBMUSD10Y climbed to their highest level since July 2007, while the yield on 30-year Treasurys BX:TMUBMUSD30Y rose to its highest rate since August 2007. Historical events such as inflation doubling in two years (1969), record 12% inflation during the energy crisis (1974), and the end of the longest continuous period of disinflation (1982–2022) have shaped market behaviors. The Israel-Hamas war has also influenced the market.
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