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Well, the Feds, 50 basis point cut yesterday provides an opportunity for investors to reassess their current portfolio allocation. So what strategies should you be using to take advantage of the Fed's easing cycle? Here to help, we've got Matt Stucky who is the Northwestern Mutual Wealth Management Chief Portfolio Manager of equities. Matt, great to see you, thanks so much for hopping on the program with us. So, Fed cuts rates by 50 basis points. What are some of the pivots that people would be apt to have in mind, perhaps going into the decision, but now that we've got a little bit more of the conversation or at least the pathway forward, coming off of the conference that took place yesterday after the decision was made?

Well, good morning. I think now is a really good time to revisit your financial plan goals and objectives with an advisor. Um, you know, 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 um, asset class right now. Um, what happened yesterday with the effect starting their easing cycle with a 50 basis point cut is that the attractiveness of money market funds has started to dissipate somewhat. And if the four curve comes to fruition, if we're having this conversation year from now Brad, you know, instead of earning 5.5% of your on your cash, which would, which is where we were, you know, just last week, that number's down to 3%. So there's some changing return profiles happening in the capital markets, an advisor can start to help you migrate some of that cash into a diversified portfolio. And that's really important because if you look over a longer term horizon, five years, 10 years, the one asset class that tends to be towards the bottom of the return stack is cash. So sitting on excess cash does have risk.

And so with that in mind, I mean, as you're thinking of the diversified mix of a portfolio, how drastically do the percentage allocations, you think, change post decision as well? Whereas someone might have been looking at fixed income and their balance of equities versus fixed income. Uh, perhaps they even have some crypto, you know. How all of these things might shift because of the decision from the Fed and the pathway forward here?

You know, I don't think your long-term strategic asset allocation should be changing very much based on yesterday's Fed action. Uh however, what we've seen is that over the last couple of years, the allocation that investors have had towards cash has risen dramatically. This is a time I think to revisit a longer-term strategic asset allocation and deploy that cash into your portfolio in a strategic manner. Um one thing that we're cautioning our clients with is you know, they're looking to replace that five 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. You know, there's a lot of conversation about can high yield bonds make sense here as a replacement to the types of yields that we were getting in the money market space. That's a very different risk. Um there's credit risk there, and right now that credit spread is just at uh 3% or so. Rewind the clock two years ago back to when some recessionary concerns were elevated in 2022, that spread was 6% or 600 basis points. And if we were to revisit that, that's a 10% downside um, to the high yield asset class if that were to happen. Very different return profile and volatility profile versus a money market, which doesn't move in value. Um, so that's a long winded way of saying that your strategic asset allocation should not change just based on what the Fed does. Uh and beware of the risk that you take is when you take one um, one money market kind of return stream and apply it to another thing like high yield.

Matt, while we have you, technology and past cutting cycles has outperformed. Is that anticipated to be one of the sectors that, or themes, that continues to catch a bid from either the larger institutions or individual investors out there that are trying to pick and choose where they should continue to lean into themes that have done well over the past year, 18 months, or take chips off the table?

You know, right now we're talking about the current macroeconomic environment with our clients as being one in kind of later, later kind of cycle dynamics, meaning that in our view, the risk of a mild recession is still somewhat elevated. Uh and in that sense, you want to embrace diversification, not just concentrate into what's working well. Um, you know, if the economy does achieve a soft landing, yeah sure, technology could continue its current momentum. But it is a higher beta sector. And if you do start to see the economy continue to decelerate and the labor market continue to decelerate, there is a risk that that high beta kind of profile of technology can work against you. And so I would just caution a little bit against concentrating into one specific sector of the economy instead embrace, you know, things like US small cap, US mid cap, international equities, to get diversification uh, which is kind of the bedrock of a good portfolio.

Matt Stucky, Northwestern Mutual Wealth Management Chief Portfolio Manager for equities, great to have you here with us on the show, appreciate it Matt.