'Throw your cash in the trash': Investors will swap dollars for stocks if interest rates fall next year, strategist says

• Investors are likely to dump cash for stocks and other assets next year, one strategist says.
• The Fed has signaled it will cut interest rates next year, likely weakening the US dollar.
• A weaker greenback promises to boost commodities and emerging markets, Ben Emons says.

Investors are likely to ditch cash next year as cuts to interest rates fuel their demand for other assets, one strategist says.

"We did put a lot of money into cash this year as those money market funds indicate," Ben Emons, a senior portfolio manager at NewEdge Wealth, told Yahoo Finance this week. He suggested investor uncertainty, higher rates, and the belief that rates would remain high were behind the trend, but argued that fears of inflation, recession, and "higher for longer" rates have dissipated now.

"Putting it in the 'trash' and using it for different opportunities, I think that's the story next year," Emons said. "You have this pivot party so you throw your cash in the trash and you take your plates out for stocks and bonds."

The Federal Reserve hiked interest rates from virtually zero in early 2022 to over 5% this year in a bid to curb rapid inflation. The US central bank's chairman, Jerome Powell, signaled last week that rates may have peaked, and the bank penciled in three rate cuts next year.

Reducing interest rates would lessen the appeal of safe assets like savings accounts and money market funds relative to riskier assets like stocks that can earn higher returns. Lowering rates could also weaken the dollar, boosting commodities and emerging markets, Emons said. Most commodities are bought and sold using greenbacks, and a weaker dollar could spur investors to look outside the US for larger returns.

Emons underscored how striking the recent hint of an approaching Fed pivot was, given inflation has remained well above the bank's 2% target in recent months.

"What Powell did last week was somewhat historic," he said, describing the Fed chair's willingness to bring rates down as a "big deal."

However, Emons also flagged risks facing investors today. They included Congressional gridlock leading to forced cuts to government spending that slow economic growth, the upcoming presidential election fueling uncertainty, and the risk that the Israel-Hamas war spreads and causes energy prices to spike.