Dan Niles named cash as a top pick for the first time since 2022, when the start of the Federal Reserve’s aggressive rate hiking campaign spurred a market drop. This time, however, with inflation running at 2.5% to 3%, he expects cash could be a good place to hide out. “The last time I picked cash was in 2022 and the market ended up going down 19%,” Niles told CNBC’s ” Squawk Box ” on Monday. “So, we’ll see how this year turns out. But I think especially, to start the year, you’re going to get a 4% yield in money market funds if you have cash. I don’t think that’s a bad place to be.” The founder of Niles Investment Management said much of the market’s performance this year will depend on inflation, saying the impact of the President-elect Donald Trump’s immigration and trade policies could outweigh any pro-growth policies. He sees a wide range of outcomes for the market, saying a 10%-20% drop this year is “possible,” while the potential upside is of 10%. “Valuations don’t give you a lot of room to maneuver,” he said. “That’s why this year, it’s like one of the widest range of outcomes I can think of — and I think it really hinges on the path of inflation in terms of whether that multiple can hold or it contracts by 20% to 30%.” Despite a December slide, the S & P 500 posted its second consecutive year with a gain of more than 20% for 2024. The broad market index also reached record highs, breaking above 6,000 for the first time. Entering the new year, the S & P 500 trades at nearly 22 times forward earnings — near its highest multiple since 2021. Separately, he named midcap value stocks as another top pick, saying they could benefit if investors start to pull back from the “Magnificent Seven” or there’s a pause in artificial intelligence spending. “They are a lot more defensive. If you go back and you look at what happened during when the tech bubble broke, or during that ’22 period of time, they held a lot better than the market,” Niles said. “And because they’re bigger than small cap names they tend to have, you know, better profitability, better ability to handle it if rates do go higher.” He also likes software firm Cisco , fiber networking company Adtran , as well as the bank stocks.
