The ‘Cash Is King’ Trade Is Ending. What Stocks to Buy Now.

Cash has been king since the Federal Reserve began its fight against inflation, while stocks have taken a dive. Now, the appeal of cash is fading away, and a select group stocks looks more interesting.

The one-month Treasury bill has soared to about 5.3% at times, putting it near its highest level since 2007. That is attractive, given that it is comfortably above the recent rate of inflation. Stocks, after all, can fall at any time.

While people were rushing into cash-like investments, stocks were getting crushed. The S&P 500 is still 13% below the record high it hit in early 2022, months before the Fed started raising interest rates to reduce demand for goods and services.

The point is that because people already own tons of cash and less stock, a reversal seems in store. That is partly because, as interest on the cash pours in, investors have to decide what to do with that money, and given the outlook for monetary policy, stocks could be the way to go.

Lower inflation, and the reduced interest rates it can bring, are what the stock market wants to see. The S&P 500 averages a 9.5% annualized gain in each month leading up to a rate cut after the final increase in a tightening cycle, according to Evercore. That equates to a 0.8% actual gain for each month.

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