Perhaps the Federal Reserve is finished raising interest rates, and perhaps the first rate cuts are just months away. Still, it’s been a good ride for savers and risk-averse cash investors as the central bank jacked its benchmark rate from near 0% to its highest in two decades. The Fed’s key rate has stayed at a target range of 5.25% to 5.50% since July.
Those relatively high rates have made cash the “cool kid,” as one financial adviser put it, and people piled into bank certificates of deposit, high-yield savings accounts, money-market mutual funds and short-term Treasury debt. For now, it’s easy to find yields past the 5% mark. Just don’t get too comfortable in cash, a new data analysis suggests. The yields that cash can generate when interest rates hit a high point can’t match the stock returns that typically follow a high-rate period, according to Callie Cox, a U.S. investment analyst at the investing platform eToro. In fact, it’s not even close. Cox scrutinized economic cycles going back to 1961, defining a cycle as the end of one recession and the start of another. First, she found the top yield on a 1-year Treasury note
BX:TMUBMUSD01Y
in that cycle, using that as a proxy for cash returns. Then she found the top one-day S&P 500 performance following the date of that top yield, measured year over year. Here’s what she found:
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Those relatively high rates have made cash the “cool kid,” as one financial adviser put it, and people piled into bank certificates of deposit, high-yield savings accounts, money-market mutual funds and short-term Treasury debt. For now, it’s easy to find yields past the 5% mark. Just don’t get too comfortable in cash, a new data analysis suggests. The yields that cash can generate when interest rates hit a high point can’t match the stock returns that typically follow a high-rate period, according to Callie Cox, a U.S. investment analyst at the investing platform eToro. In fact, it’s not even close. Cox scrutinized economic cycles going back to 1961, defining a cycle as the end of one recession and the start of another. First, she found the top yield on a 1-year Treasury note
BX:TMUBMUSD01Y
in that cycle, using that as a proxy for cash returns. Then she found the top one-day S&P 500 performance following the date of that top yield, measured year over year. Here’s what she found:
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