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Stocks and bonds have posted their biggest rallies recently, fueled by hopes that the Fed will start cutting rates next year. According to BlackRock, while we are likely at the end of the hiking cycle, the central bank is expected to maintain higher rates for an extended period.Historically, stocks and bonds have performed better during the pause period than during easing periods following the initial rate cut. However, the interaction of slowing economic growth, US elections, and escalating geopolitical tensions introduces volatility into the market environment.While large-cap growth and quality stocks may still lead the market rally and provide some stability, various factors could prompt leadership changes throughout the year.The iShares MSCI USA Quality Factor ETF (QUAL – Free Report) has gathered more than $12 billion of new cash this year. Stocks like Apple (AAPL – Free Report), Microsoft (MSFT – Free Report), and NVIDIA (NVDA – Free Report) are its top holdings.Investors have poured over $1 trillion into money market funds and other cash-like instruments this year. While it is important to reduce exposure to cash now, the risk-reward doesn’t justify a move to the long-duration bonds.Investors could consider active bond strategies and intermediate-duration bond exposures. Take a look at the BlackRock Flexible Income (BINC – Free Report) and the iShares 3-7 Year Treasury Bond ETF(IEI – Free Report).AI enthusiasm drove the market rally this year, but adoption of generative AI is still in its early stages. ETFs like the iShares Robotics and Artificial Intelligence Multisector ETF(IRBO – Free Report) could continue their rally next year.Running Length: 00:29:11More By This Author:Top ETF Stories Of 2023
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