Investors should be upping their cash positions now that the Federal Reserve is signaling fewer rate cuts next year, according to fixed income investor Jeffrey Gundlach . The Fed lowered the federal funds rate by a quarter percentage point on Wednesday, to a range of 4.25% to 4.50%, but telegraphed only two more rate cuts next year, instead of the four it signaled in September. Gundlach believes two is “on the maximum side.” That is good news for holders of cash-equivalent investments like money market funds, which follow the Fed’s moves. The annualized seven-day yield Crane 100 Money Fund Index , is currently 4.41%. “Now you should be increasing cash because the yield on cash appears not to be going away,” said Gundlach, CEO of DoubleLine Capital. “It looked like there was a chance we would have a shrinkage in the cash yield, but that’s not likely to happen based on [Wednesday’s Fed] press conference.” After the central bank wrapped up a two-day meeting Wednesday, Fed Chair Jerome Powell said the central bank will look for progress on inflation as it assesses any potential rate cuts next year. “We can … be more cautious as we consider further adjustments to our policy rate,” he said at the press conference . Wall Street has been warning for months that investors should move out of excess cash positions and extend duration in bonds to lock in yield as the Fed embarked on its rate-cutting campaign. Yields in money markets, certificates of deposit and high-yield savings have ticked down alongside the Fed’s moves. Still, Americans have flocked into money market funds, which have total assets today of some $6.77 trillion, according to the Investment Company Institute . That is nearly half a trillion dollars more than was held in money markets in September, before the Fed made its first rate cut in four years , followed by two more since. Gundlach said he would hold about 30% of a model portfolio in cash right now. “You’re not giving up much yield versus the other assets that have volatility and risk,” he said. He advised keeping 50% in bonds and about 20% in stocks. Within fixed income, Gundlach is staying away from the long end of the yield curve. He won’t hold assets beyond 10-year Treasury notes, for example. “There’s no extra yield for it,” he said. “I think you hang out in lower duration than an index fund and you have a middle-of-the-capital-structure type portfolio. This is what we have been doing pretty much all year.”
