Buy the stock market dip? Why 'cash' yielding the most since 2007 could be king

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Cash equivalents like Treasury bills are yielding 5% for the first time since 2007, tempting investors worried about the Federal Reserve's inflation fight.

When a $6 dollar plastic crown can fetch almost $600,000 at auction, it’s safe to say the value has been inflated.When a $6 dollar plastic crown can fetch almost $600,000 at auction, it’s safe to say the value has been inflated.

Specifically, the earnings yield of the companies in the S&P 500 index SPX converged in the past week with the 6-month Treasury TMUBMUSD06M rate, with both meeting around 5%, for the first time in about 20 years . Schwab’s house view on equities has been cautious for awhile, including that higher-growth stocks could be vulnerable to further pullbacks as the Fed continues to tightening financial conditions.

“Why not take 4.8% or 5% on a yield basis that’s risk-free,” said Stephen Guilfoyle, founder and president of Sarge986, a private family trading operation, and a former NYSE floor trader. “I’m moving some of my cash to 3-month paper and I’m really an equities guy.” In January, investors who trade in fed-funds futures market were expecting the Fed to stop raising rates at 5%.

 

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