Stock investors have had a great run in recent years, but with cash now offering positive inflation-adjusted returns, it may be wise to dial back on risk, according to Goldman Sachs Group Inc.
“Mixed-asset investors should maintain equity exposure but lift cash allocations,” Goldman strategists led by David Kostin wrote in a Nov. 19 report. “Cash will represent a competitive asset class to stocks for the first time in many years.”
The call reflects the impact of Federal Reserve interest-rate hikes that have sent yields on money-market funds well over 2 percent — surpassing the pace of inflation. With the Fed projected to raise its benchmark by another quarter percentage point next month, and further moves looming in 2019, cash may become all the more attractive.
As for stocks, investors should tilt their portfolios toward defensive sectors including utilities, the Goldman strategists wrote. They forecast the S&P 500 will generate “a modest single-digit absolute return” next year as the “robust” profit and economic growth seen in 2018 slows.