The Fed’s latest update confirmed what many investors have started to suspect: interest rates may stay higher for longer than originally expected. While some officials still anticipate a cut later this year, others pointed to lingering inflation pressures and a strong labor market as reasons to be cautious. The message was mixed—at best.
So where does that leave us, especially when it comes to fixed income and the growing pile of cash on the sidelines?
Fixed income is back…
The good news is that investors no longer need to reach for yield. Today’s fixed income landscape looks far better than it did just a few years ago. High-quality bonds (think Treasuries and investment-grade corporates) are offering real income again.
That said, managing interest rate sensitivity is still important. Longer-term bonds could benefit if rates fall later this year, but they’re also more vulnerable if inflation proves sticky. That’s why we continue to take a balanced approach, pairing shorter-term bonds (which offer attractive yields with less risk) with carefully selected longer-term positions that could add value over time.
We’re also staying active. In a rate environment like this, credit quality, bond structure, and sector exposure matter more than ever.
Cash can be a short-term bolster…
With cash yielding close to 5%, it’s no surprise that many investors are holding more of it. And in uncertain times, holding cash can feel like a safe bet.
But cash comes with a tradeoff. It may look attractive now, but it rarely keeps up with inflation over the long run. And when the Fed eventually begins to cut rates, those yields can drop fast.
That’s why we prefer to think of cash as a tool, not a destination. While it can be useful while waiting for the right opportunities, sitting in cash for too long can increase the risk of missing out on growth and income. We believe the strongest approach is to deploy cash thoughtfully—into bonds, equities, or alternatives—based on their goals and the market landscape.
What we’re doing at LCM…
As always, we’re keeping our portfolios flexible and focused on quality. In this environment, that means:
✔ Taking advantage of attractive bond yields without overreaching for risk
✔ Using cash strategically, not passively
✔ Staying ready and adjusting when the rate picture becomes clearer
Markets may still be wrestling with mixed signals, but our strategy remains the same: stay disciplined, stay diversified, and stay focused on what we can control.
Questions or thoughts? Reach out at any time. We’re always here to help.
