Investors Prepare to Deploy Cash as Market Outlook Improves – Where to Invest Next?

Happy days are here again on Wall Street as stocks rally to record highs, fueled by the prospect of a Federal Reserve interest rate cut in September. With inflation pressures cooling, investors are eager to put their savings to work in the stock market, where there is over $6 trillion in cash sitting in money-market funds.

Ronald Temple, chief market strategist at Lazard, notes that people are overweight in cash and waiting to deploy their dry powder. But where should investors put their money? According to Temple, thinking smaller and beyond the “Magnificent Seven” could lead to greater returns.

The Russell 2000 small-cap index and the Invesco S&P 500 Equal Weight ETF have outperformed the S&P 500 recently, as companies of all sizes and more sectors beyond technology stand to benefit from potential rate cuts and economic growth.

In the fixed-income market, the iShares Core U.S. Aggregate Bond ETF has seen gains, offering better-than-average yields in excess of longer-term Treasury bonds. Capital Group’s flagship mutual fund, The Bond Fund of America, yields above 4.6% and provides exposure to high-quality agency mortgage-backed securities and investment-grade corporate bonds.

Tom Plumb, manager of the Plumb Balanced Fund, favors higher-end corporate bonds for banks and financial-services companies, with top fixed-income holdings in names like JPMorgan Chase, Charles Schwab, and Goldman Sachs Group.

The easing of inflation pressures has also led to a rally in precious metals like gold and silver, as the U.S. Dollar Index edges downward. A continued slide in the dollar could provide a boost to precious metals, making them cheaper for foreign investors like China, India, and Turkey, who have been buying gold at a rapid pace.

Copper prices have also rallied, surging over 25% this year, reflecting the resilience of the U.S. economy and strength in China and other emerging markets. With the potential for government stimulus spending to jump-start economic growth, the outlook for metals remains positive.

In conclusion, the recent market trends suggest that investors may find opportunities in smaller-cap stocks, fixed-income securities with attractive yields, and precious metals like gold and silver. With the prospect of rate cuts and economic growth on the horizon, it may be a good time to put that dry powder to work.