Source: Jinshi Data

The Chief Financial Officer of Blackrock stated on Tuesday that even with a moderate rate cut by the Federal Reserve, investors are expected to increase their allocation to Stocks and Bonds, while reducing their Cash holdings.

Earlier this year, expectations were that the Federal Reserve would implement significant rate cuts after raising interest rates to combat inflation, but those expectations have eased in recent months as the USA economy continues to show growth despite high borrowing costs.

Martin Small, Chief Financial Officer of Blackrock, stated on Tuesday at the Goldman Sachs American Financial Services Conference, "I believe that even a moderate rate cut will drive investors to undertake a substantial degree of risk reallocation."

Lower interest rates are ultimately expected to bring Money Market yields down from the current level of over 4%. Currently, similar Cash-like instruments, such as treasury bills, yield at this level.

However, so far, there is little evidence that investors are abandoning Cash. Data from the Investment Company Institute shows that as of last week, the Assets in USA Money Markets reached $6.77 trillion, up from $6.3 trillion at the beginning of September.

Small stated, "Global political and economic uncertainties remain, and Cash still represents an attractive safe haven asset for clients."

He indicated, "The market's expectations for Federal Reserve rate cuts are... shallow and few, and these factors along with others contribute to the greater stickiness of Money Market Fund balances."

The Federal Reserve started to cut interest rates by 50 basis points in September. Subsequently, it cut rates again by 25 basis points last month, and investors are currently betting that the central bank will once again cut rates by 25 basis points later this month. Thereafter, further easing measures will largely depend on economic data and the inflation path.

Despite this, investors currently expect the federal funds rate to be around 3.7% by the end of next year, which is approximately 90 basis points higher than the expectations in September.

Nevertheless, Small noted that investors who prefer Cash have underperformed compared to traditional portfolios mixed with Stocks and Bonds. He stated, "This fear of missing out on good opportunities... is significantly driving a risk reallocation."

He also added that Blackrock's fixed-income products, such as Bonds Exchange Traded Funds, have seen strong Inflow this year. He said, "This is not a flood-like Inflow... but we are indeed seeing more funds entering fixed income to begin normal allocation."

编辑/jayden