Should You Get Out of Cash Before It Starts Underperforming Thanks to Fed's Pivot?

investing.com:

A recent warning by YahooFinance warns investors to sell their cash and buy bonds and stocks now as the Fed pauses.To wit:

“Get out of cash now. Take advantage of some of these incredible things in the fixed-income markets, especially in the belly of the curve. Take advantage of the companies that are still available to you at reasonable prices,” said Gargi Chaudhuri, head of investment strategy at BlackRock) iShares Americas.

Such advice certainly goes against a mountain of historical evidence from both inverted yield curves and Fed rate cuts that suggest investors should be selling stocks and heading to the safety of cash.

For example, the four-panel chart below shows the previous yield curve inversions when more than 50% of the ten economically sensitive yield spreads we track were inverted.

The red lines denote where 50% of the yield curves became inverted and how investors fared during the un-inversion process. In every case, investors were better off in cash, except for 1990, when it was virtually breakeven.

In recent years, investors prospered by selling stocks and going to cash in early 2019, avoiding the eventual market downturn and recession in 2020.

While it seems as if the “yield curve” is broken, and investors should “get out of cash,” the yield curve has yet to UN-invert, which is where economic recessions become visible.

As noted, another historical precedent that goes against “selling cash to buy stocks” is the Fed rate-cutting cycle. Such was a point discussed last week.

“Since 1970, there have been nine instances in which the Fed significantly cut the Fed Funds rate. The average maximum drawdown from the start of each rate reduction period to the market trough was 27.25%.

The three most recent