As the Federal Reserve kicks off its interest rate easing cycle, Northwestern Mutual Wealth Management chief equities portfolio manager Matt Stucky joins Wealth! to discuss how investors can reassess their portfolio allocations. “I think now is a really good time to revisit your financial plan, goals, and objectives with an advisor. Over the last year or so, a lot of investors have flocked to money market funds, and earlier this month, we saw a report that about $6.3 trillion is sitting in the money market asset class right now,” Stucky explains. He notes that the Fed’s 50-basis-point cut will “dissipate” the attractiveness of money market funds. He believes investors shouldn’t change their long-term asset allocations given the Fed’s decision. However, he notes that cash allocations have increased over the last few years, and now is a good time to deploy them strategically. He warns “the one thing that we’re cautioning our clients with is they’re looking to replace that 5 to 5.5% that they were getting in the money market kind of area with something that’s a similar type of yield. But today, you have to take more risk to achieve that.” While the tech sector has spearheaded much of the market’s growth this year, Stucky encourages investors to proceed with caution: “Right now, we’re talking about the current macroeconomic environment with our clients as being one in kind of later cycle dynamics, meaning that in our view, the risk of a mild recession is still somewhat elevated. And in that sense, you want to embrace diversification, not just concentrate into what’s working well.” He explains that if the economy achieves the Fed’s soft landing, the tech sector could continue its growth. However, if the economy decelerates, tech could come under pressure, so investors should avoid being too concentrated in a specific sector and embrace diversification, which he calls “the bedrock of a good portfolio.”
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