Is it buying stocks, bonds, or holding cash?
For many American investors, they may have been more or less conflicted about this issue over the past year. But in fact, they may only face a "happy annoyance", because no matter how they invest, at least they will not "lose"!
For many years, Wall Street has complained that "investors seem to have nowhere to go except for the stock market.". But in 2023, American investors are actually facing a wealth of options.
At the end of this year, they almost invested their funds in every direction they could, driving a collective rebound across asset classes such as stocks, bonds, gold, and even cryptocurrencies. The yield of high-risk corporate bonds has dropped to its lowest level in the past year, and bond prices are expected to see their first annual increase in three years.
According to data from Dow Jones Market Data, the 60/40 bond investment portfolio strategy that was once questioned last year is expected to achieve a return rate of around 17% this year, which is the best performance since 2019.
The following multiple charts can reveal the "happiness troubles" that American investors are currently facing, as well as their current "multi line" stance:
Reconsidering stocks
For most of this year, American enthusiasm for stocks has actually cooled down, but towards the end of the year, sentiment quickly began to shift again - there are signs that market sentiment is rapidly recovering, and the recent rise has attracted a large number of investors.
The SPDR Standard&Poor's 500 ETF Trust, an exchange traded fund linked to the benchmark index, attracted approximately $40 billion in inflows in December and is expected to set the largest monthly inflow record since 1993.
The S&P 500 index has surged by 24% so far this year and is expected to end its 2023 market with the longest weekly streak since 2017.
It is worth mentioning that earlier this year, investors were relatively cautious about the US stock market. According to data from LSEG Lipper as of November, US stock mutual funds and exchange traded funds recorded $133 billion in outflows during the year, the highest since 2020.
"If people can earn 5% to 5.5% returns by holding cash, then the threshold for holding stocks will undoubtedly be higher," said Ed Clissold, Chief US Strategist at Ned Davis Research
Bond buying frenzy
As the Federal Reserve shows a tendency towards a policy shift next year at the end of the year, investors are now eager to lock in higher yields.
According to the data of Tradeweb, the purchase volume of investment goods such as large deposit receipts and treasury bond has jumped to the highest level since at least 2015 this year.
On Fidelity's retail brokerage platform, the trading volume of bonds and large certificates of deposit has surged by about 10 times since the end of 2021, far exceeding the record level of the past 20 years.
Some investors expect the historic bond market crash that pushed up yields earlier this year to end in the coming months. According to Bank of America's December survey of fund managers, investors have not been so optimistic about the bond market in 15 years. When bond prices rise, the yield will decrease.
According to LSEG Lipper's data as of November, the taxable bond fund has also attracted approximately $147 billion in inflows this year.
Cash is enough to stand undefeated
This year, there is still a large amount of capital flowing into cash or cash like investments in the US market.
According to Crane Data, the asset size of US money market funds has surged to a record high of over $6 trillion. The returns on these typical safety assets have jumped to the highest level in the past two decades, reaching around 5.2%.
The increase in the return on ultra safe assets has delighted many retirees and ordinary Americans. According to Crane Data's estimation, investors who deposited cash into money market funds earned approximately $300 billion in interest income, exceeding the total of the previous decade. This has boosted the wallets of many Americans in 2023.
There is still controversy over what this accumulation means for the market. Looking ahead to 2024, many investors expect the Federal Reserve to shift towards rate cuts after aggressive rate hikes in the past two years. The decrease in interest rates may weaken the passive income brought by these safe investments and affect the entire economy in new ways.
Therefore, some people believe that this massive cash asset provides investors with sufficient reserves and can be further invested in the stock market in the future, thereby continuing to boost the market in the new year. Others believe that these fund holders will definitely spend a portion of their cash on various expenses such as concerts or restaurants, which will provide more impetus for the US economy.
This largely depends on the policy orientation of the Federal Reserve in 2024. Laurie Brignac, Chief Investment Officer of Invesco, pointed out that "this is another reason why I am more optimistic about the economy. When this money is put into use, it will have a significant impact on the economy.".