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From: Capital Group
Cash-like holdings may see little additional upside as the Fed finishes hiking rates. History shows that in the 18 months after the Fed ended hikes in the last four cycles, yields on cash-like investments have decayed rapidly. The 3-month Treasury yield, a benchmark Treasury security with a yield similar to cash-like investments, fell an average of 2.5%.
If history were to repeat, money market yields are likely to decline, and investors may be better served by being invested in stocks and bonds.
Related: Five Themes for 2024: Core Bonds Could Be Favorable Now
Source: Capital Group, (Left chart): Bloomberg, Federal Reserve. Chart represents the average decline in 3-month Treasury bills starting in the month of the last Fed hike in the last four transition cycles from 1995 to 2018. Past results are not predictive of results in future periods. (Right chart): Capital Group, Morningstar. Chart represents the average returns across respective sector proxies in a forward extending window starting in the month of the last Fed hike in the last four transition cycles from 1995 to 2018 with data through 6/30/23. The 60/40 blend represents 60% S&P 500 Index and 40% Bloomberg U.S. Aggregate Index, rebalanced monthly. Long-term averages represented by the average five-year annualized rolling returns from 1995. Past results are not predictive of results in future periods. https://www.capitalgroup.com/advisor/insights/articles/rate-hikes-near-end-historic-investor-opportunity-may-begin.html.
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