Ongoing market volatility may signal it’s time to shift investing strategies and put money back in some mundane, yet safer, alternatives as the chaos plays out. Since the financial crisis, investors have taken to a mentality known as “There is No Alternative” or TINA, emphasizing the idea that investors should stay longer-term on bonds and equities and steer clear cash. That sentiment is changing as markets sell off, with the S & P 500 down nearly 25% this year and hitting fresh bear lows as investors assess the impact of the Federal Reserve’s rate hikes on the economy. Some analysts and strategists have come to find appealing opportunities in short-term bonds and cash once on the periphery of investors’ minds. I like to say a bear market is never fun to go through, but the bear market is when the best values are created.” Chief investment officer, Bleakley Financial Group Peter Boockvar “For the past decade most new traders hesitated going into cash or dared touching fixed income,” said Ed Moya of Oanda. “Now, you’re seeing Wall Street dealing with the harsh reality that you’re no longer going to have zero borrowing costs.” Many market strategists expect further downside to equities, as the Federal Reserve’s rate hikes work their way through the system. They also point to a slew of high-yielding — and less volatile — alternatives for investors looking to take a step back from stocks. Back to the basics High interest rates and this brutal bear market make something as simple as cash an asset investors should consider holding on to. If anything, it enables investors to readily pounce on market opportunities or stocks they believe are trading at attractive levels. That works especially for those who believe we are in a bear market with more troughs and lows lie ahead, said Adam Sarhan, CEO of 50 Park Investments. Bracing for the fourth quarter Markets plagued by increasing economic uncertainty and geopolitical risk in fourth quarter Wall Street analysts’ favorite stocks for the fourth quarter include a casino name that could double Wall Street analysts’ favorite stocks for the fourth quarter include a casino name that could double “Cash is a position and cash gives you strength,” he said. “During times of duress, people with cash are able to step in. They can buy assets at extremely attractive prices because they have the cash available to deploy at the right time.” Bleakley’s Peter Boockvar agrees that a bear market makes for an opportune time to hold cash. Cash in a bank account, however, will typically offer a lower yield to money markets and short-term Treasury bills. He argues that 1-month and 3-month bills yielding 2.774% and 3.275% on Friday, respectively, may be a better alternative. “It’s dry powder to take advantage of opportunities in the markets,” Boockvar said. “I like to say a bear market is never fun to go through, but the bear market is when the best values are created.” Not everyone is convinced cash is the right move for investors. Jeff Kilburg, founder & CEO of KKM Financial, discourages holding cash. Timing an exit and entrance into the market can be difficult and cash may struggle with inflation remaining elevated, he said. Paul Christopher, head of global market strategy at Wells Fargo Investment Institute, echoed Kilburg’s comments “As soon as you go to cash in an environment like this when inflation is so high, the more quickly you start to erode that cash through inflation,” Christopher said. Opportunities in the bond market Short-term bonds look more attractive than cash to some investors given the rise in yields in recent weeks. The yield on the 2-year note has been on a tear in recent days, touching levels not seen in 15 years in September, while the yield on the 10-year note briefly traded above 4% last week for the first time since 2008. “If you go into a downturn, and inflation heads back towards a one-handle, all of a sudden those bonds are worth a fair amount more than they are today,” said Citadel’s Ken Griffin during CNBC’s Delivering Alpha conference last week. “That’s a win in your portfolio that’s in the green when your equity portfolio is likely to be in the red.” Aureus Asset Management CEO and Chairman Kari Firestone told CNBC’s ” Halftime Report ” last week that she’s begun investing in bonds for some clients that have large swaths of cash lying around, but cautions against putting 40% of a portfolio into fixed income when “nobody wanted a bond last year.” “I think that advisors can ease in and start to add that and definitely it’s a way to keep your capital,” she said. Since the financial crisis in 2008, easy money policy from the Fed encouraged investors to put money into risk assets like growth stocks offering sizeable returns. As the market rose and rates hovered near zero, the environment offered little incentive for investors to hold cash. The narrative has shifted with the tightening regime that’s hit the central bank in recent months and as the bear market that’s toppled Wall Street shows few signs of easing. In a note to clients earlier this month, Bank of America’s Savita Subramanian echoed that sentiment. “TINA is no longer relevant, as 2-yr treasuries have become an alternative,” Subramanian said in a note. “We think that will continue to pressure risk premia generically, and indeed some of what we are seeing late in the week in risk assets is likely about this very dynamic. Indeed, with breakevens still well contained we have seen implied real yields back up significantly across the curve.” Time horizon is key To be sure, no single strategy works for every investor, and putting money into cash and bonds often depends on one’s time horizon. Younger investors, in particular, may feel hesitant about locking up cash in bonds, preferring cash on hand to buy attractive stocks, both Oanda’s Moya and Sarhan of 50 Park Investments said. If anything, the current market conditions make a case for why investors should diversify their portfolios and consider fixed income as an asset in that process. “A lot of the younger generation’s investing all in one asset class like cryptocurrency can be devastating to your investment timeline,” Kilburg said. “That’s why having some in fixed income and some in certain specific yielding instruments that are safe like a U.S. Treasury does make sense even though it has no sex appeal.” — CNBC’s Michael Bloom contributed reporting.
