Want to buffer your portfolio from a downturn? Step away from cash and into bonds, UBS says
Proactive investors will want to switch out of their cash-heavy positions now and get into bonds before the Federal Reserve begins cutting rates, said UBS’s Mark Haefele.
The 100 largest money market funds are still yielding well over 5%, but those rates will come down as the Fed trims rates. Haefele, global chief investment officer for wealth management, said that in its base case UBS expects 8.5% returns for high-quality medium duration bonds, compared to 4.3% for cash.
Another reason to go for longer-term fixed income: In a hard landing situation, portfolio losses would be cushioned by those bonds. In a recession scenario, UBS anticipates equity markets could tumble more than 15% on a total return basis, but those losses would be curbed by a 16% rally in bonds.
A portfolio that is allocated 60% toward stocks and 40% in bonds would see just a 3% decline in this circumstance, Haefele said.
“Investors holding excessive cash would not be as well insulated in this scenario – cash does not ‘rally, and the returns on rates would likely fall in this scenario,'” he wrote.
–Darla Mercado
Transportation stocks poised to catch a bid, MRB Partners says
With the downturn in freight shipments poised to reverse in 2024, partly due to low inventories spurring a revival in manufacturing output, transportation stocks should similarly rebound, according to a Thursday note from MRB Partners. Increased global trade should also give the stocks a boost, the researcher said.
Within the industry, MRB recommends air freight and logistics companies, saying, “the recent upswing in air freight revenue ton miles bodes well for the relative forward earnings of air freight stocks, which are also attractively valued.”
Railroads and truckers, meanwhile, are being held in check by “muted growth in non-intermodal rail traffic, subdued pricing trends, and elevated relative valuations,” MRB strategist Salvatore…
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