[Investing] Three reasons to seize the current opportunity and make good use of cash for investment

3. Markets tend to rebound before interest rate cuts

Finally, let us look at the historical data related to the first interest rate cut immediately after the end of the interest rate hike cycle. As shown in Figure 3, in the eight months before the first interest rate cut, the average total return in both the stock and bond markets was 8-9%, far exceeding the return on cash. Markets are forward-looking and they tend to rally in anticipation of rate cuts, and this is especially true for bonds.

Figure 3: Most of the rally occurred before the first rate cut, especially in bond markets

Overall, we think stock and bond markets will significantly outperform cash in the year leading up to the first rate cut, as they have in past cycles. A multi-asset portfolio, especially one that includes alternative investments such as hedge funds, private equity and commodities, can help maximize potential returns while diversifying risk.