Between earn-nothing cash, broken long-term bonds, these are the safety trades of 2026 market

Many investors are taking some record equity gains off the table and turning to short-term investments, particularly ultra-short bond funds, amid persistent concerns that the stock market is headed for an inevitable downturn. Bank deposits are paying next to nothing, and long-term bonds have been losing money and remain subject to high volatility in an uncertain rate environment. The S&P 500 Index has delivered strong returns over the past decade, but investors are now worried about downside risk. As investors take some money off the table, bank deposits yield well under 1%, and long-term bonds like the iShares 20+ Year Treasury Bond ETF (TLT) have posted an average annual return of negative 6.7% over the past five years, while the 7-10 Year Treasury Bond ETF (IEF) has seen an average annual decline of 1%. Investors are looking for other safety trades to beat inflation. Some financial professionals have increased the cash portion of their clients' portfolios to about 5%, up from 2%, creating a basket of ultra-short ETFs for exposure to treasuries, floating rate securities, and active credit management. Others are using a combination of short-duration bond funds and money market funds for liquidity, avoiding duration risk in the current market. The long end of the bond market has become more volatile due to inflation concerns, geopolitical fears, and the possibility of the Federal Reserve raising rates, although recent inflation and jobs data have lowered the odds of immediate rate hikes. Ultra-short bond funds, which primarily invest in fixed-income securities with maturities typically under one year, are proving popular as a short-term place to park money.