Should I buy stocks, bonds, or hold cash? For many U.S. investors, they may have struggled with this question at one point or another over the past year. But in fact, what they face may just be a "happy trouble", because no matter how they invest, at least they will not "lose"! For years, Wall Street has been complaining: "Investors seem to have nowhere to go but the stock market." But in 2023, American investors actually face a wealth of options.

In the final moments of the year, they put their money on pretty much everything they looked at and fueled a collective rally across asset classes including stocks, bonds, gold and even cryptocurrencies. Yields on riskier corporate bonds have fallen to their lowest levels in the past year, while bond prices are on track for their first annual gain in three years.

According to data from Dow Jones Market Data, the 60/40 stock-bond portfolio strategy that was questioned last year is expected to return about 17% this year, which is the best performance since 2019.

The following charts can reveal the "happy troubles" that American investors are currently facing, as well as their current posture of "attacking on multiple fronts":

Rethink stocks

Americans' enthusiasm for stocks actually cooled for much of the year, but sentiment quickly began to turn toward the end of the year -- with signs that sentiment was quickly picking up, with the recent rally attracting a large number of investors.

The SPDR S&P 500 ETF Trust, an exchange-traded fund linked to the benchmark index, attracted about $40 billion in inflows in December, putting it on track for its largest monthly inflow since 1993.

The S&P 500 has soared 24% so far this year and is on track to end 2023 with its longest weekly winning streak since 2017.

It is worth mentioning that earlier this year, investors were once more cautious towards U.S. stocks. U.S. stock mutual funds and exchange-traded funds have recorded $133 billion in outflows so far this year, the most since 2020, according to LSELipper data as of November.

In this regard, Ed Clissold, chief U.S. strategist at NedDavis Research, said: "If people can get 5% to 5.5% returns by holding cash, then the threshold for holding stocks will undoubtedly be higher."

bond buying frenzy

Investors are now rushing to lock in higher yields as the Federal Reserve signaled at the end of the year that it will shift policy next year.

Purchases of investment products such as certificates of deposit and Treasury bonds have jumped this year to the highest levels since at least 2015, according to Tradeweb data.


On Fidelity's retail brokerage platform, trading volume in bonds and certificates of deposit has surged about 10-fold since the end of 2021, far exceeding record levels of the past 20 years.

Some investors expect the historic bond rout that pushed yields higher earlier this year to end in the coming months. According to a December Bank of America money manager survey, investors have not been so bullish on the bond market in 15 years. When bond prices rise, yields fall.

Taxable bond funds have also attracted about $147 billion in inflows this year, according to LSELipper data through November.

Cash is enough to stay invincible

There has also been a significant flow of money into cash or cash-like investments in the U.S. market this year.

Assets in U.S. money market funds have surged to a record of more than $6 trillion, according to CraneData. Yields on these typically safe assets have jumped to their highest levels in the past two decades, reaching around 5.2%.


The increase in the yield on ultra-safe assets has delighted many retirees and ordinary Americans. Investors who parked cash in money market funds earned about $300 billion in interest income, more than in the previous decade combined, according to CraneData estimates. That leaves many Americans' wallets bulging in 2023.


What this accumulation means for markets is up for debate. Looking ahead to 2024, many investors expect the Federal Reserve to turn to rate cuts after aggressively raising rates over the past two years. Falling interest rates could erode the passive income generated by these safe investments and ripple through the economy in new ways.

Therefore, some people believe that this huge cash asset provides investors with sufficient reserves to further invest in the stock market in the future, thus continuing to boost the market in the new year. Others believe that these fund holders will definitely spend some of their cash on various purchases such as concerts or restaurants, which will provide more impetus to the U.S. economy.

Much depends on the Fed's policy direction in 2024. Laurie Brignac, chief investment officer of Invesco, pointed out, "This is another reason why I am more optimistic about the economy. When this money is put into use, it will have a big impact on the economy."