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Here's Why Safe Asset ETFs Could Surge Again

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Wall Street has been more-or-less upbeat in recent weeks despite the ongoing debt-ceiling negotiations in the United States. Yet, JPMorgan stated that stocks’ risk/reward is “poor,” and suggested adding cash and gold holdings, as quoted on CNBC.

Should You Follow J.P. Morgan?

There are a few factors that could bother the decent market momentum that we have seen in 2023. Though Fed Chair Powell recently indicated that the U.S. central bank may not act extremely aggressively in the coming months due to the regional bank crisis emanating in March, Minneapolis Fed President Neel Kashkari said a likely June pause on rates doesn’t mean an end to the hiking cycle, as quoted on CNBC.

China is facing a new wave of Covid-19 infections that could see as many as 65 million cases per week by the end of June, per a CNBC article. This disturbing prediction was made by respiratory disease specialist Zhong Nanshan at a biotech conference in Guangzhou. According to a Bloomberg report, the latest Omicron subvariant XBB is expected to result in 40 million infections per week by the end of May before peaking at 65 million a month later, the CNBC article reported.   

Even though a U.S. debt default is unlikely, the Biden-McCarthy meeting ended with no deal on the debt ceiling despite a productive session between the duo. This put the broader market in an uncertain moment. Just the thought of a U.S. debt default means a lot to investors worldwide. 

BofA has raised its 2023 price target for the S&P 500 to 4,300, which represents a modest 3.6% increase from the current level. These gains do not generate much enthusiasm, as quoted on Business Insider and published on Yahoo Finance. According to BofA's Savita Subramanian, while valuations are reasonable, sentiment remains pessimistic.

Why Investing in Cash & Gold to Lead to a Stable Portfolio

Investing in cash and gold can be seen as a safe way to diversify one's investment portfolio and provide a level of stability and security. Here are a few reasons why some individuals choose to invest in cash and gold:

Safe haven assets: During times of economic instability or market downturns, cash and gold are viewed as safe havens. Investors seek these assets to protect their wealth when there is increased uncertainty or volatility in other markets. Gold, in particular, has a long-standing reputation as a safe haven asset in times of crisis.

Liquidity: Cash is the most liquid asset, readily available for immediate use. It can be used for emergencies, everyday expenses, or to seize investment opportunities quickly. Gold, while not as liquid as cash, is still relatively easy to convert into cash, particularly in the form of gold bars or coins.

Portfolio diversification: Investing in different asset classes helps spread risk and reduce exposure to any single investment. Cash and gold have distinct characteristics compared to stocks, bonds, or real estate. Their performance may not always align with other asset classes, making them valuable diversification tools.

Preserving value: Both cash and gold are considered stores of value. Cash, especially when held in stable currencies, maintains its nominal value over time. Gold has been historically been recognized as a valuable asset and a hedge against inflation. By holding these assets, investors aim to protect their wealth from potential economic uncertainties and currency fluctuations.

Instead of Cash, Bet on Ultra-Short -Term Bond ETFs

The Fed has been hiking short-term rates. As a result, short-term bonds are yielding more currently. Invesco Ultra Short Duration ETF (GSY - Free Report) and iShares Short Treasury Bond ETF (SHV - Free Report) are examples of good bets here. GSY yields as high as 3.18% annually, while SHV yields 2.65%.

Bet on Gold ETFs

Gold ETFs like SPDR Gold Shares (GLD - Free Report) and iShares Gold Trust (IAU - Free Report) should gain ahead if the debt-induced deadlock persists.

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