R.I.P. the TINA Market? Five Considerations for the "CDs vs. the Market" Debate

By: Edward Jones
DEWITT, Mich. - Nov. 22, 2022 - PRLog -- Since 2009, the fed funds rate has averaged 0.6%, spending just 469 days above 2% (9% of the time)1. Similarly, the 10-year Treasury yield has averaged 2.3% over that time, topping 3% for less than 600 days (17% of the time)1. As a result, the term "TINA Market" has been widely used to describe the investment environment over the last decade and a half, with TINA standing for "There Is No Alternative." This is in reference to the conditions created by monetary-policy stimulus, in which ultra-low bond yields offer no compelling alternative to equity-market returns.

Appropriate cash management and investing in short-term fixed income are core elements of a well-diversified approach. But consider the following five things to help ensure your portfolio remains appropriately geared to the long-term goals it's built to help you achieve, even as CDs have embarked on their comeback tour.

1. Risk is a door that swings both ways
  • We recognize that this year's market declines, coupled with increased short-term yields, have raised the appeal of the perceived safety of short-term CDs and Treasuries. While they are viable investments within a diversified portfolio, we recommend investors avoid the tendency to oversteer in this direction. Such a move could help protect against downside in the markets, but it is not a risk-free approach.
2. When the Fed pivots, so do stocks
  • We don't think the Fed can yet declare victory in the war over inflation, with comments from Fed officials last week aligning to our view that rate hikes will continue, though at a smaller pace, through the early part of next year. Nevertheless, we are growing closer to the end of the Fed's campaign, and history has shown that the period after the last rate hike tends to be quite favorable for equity-market returns.
3. Inflation-adjusted returns favor equities
  • While CDs and short-term Treasury bonds can provide more predictable yields, investors shouldn't lose sight of both longer-term return potential as well as the impact of inflation on returns.
4. Don't forget about bonds
  • Bond returns have suffered this year, as the Fed has hiked its policy rate while 2-year rates have risen even more sharply. CD rates (approximated by 2-year yields) are now much higher, raising their appeal against the backdrop of falling bond prices.
5. Use a short ladder to step into long-term positions
  • We don't think we've seen the last of market volatility, but we think we're making progress in the bottoming phase of this bear market.
Source: Bloomberg

Edward Jones - Mae Luchetti
Source:Edward Jones
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