Higher cash yields change what investors require from equities. When lower-risk assets provide meaningful returns, stocks must offer sufficient compensation through earnings growth, dividends or valuation recovery.
Risk premium determines attractiveness
Equity risk premiums are not static. If earnings expectations fall or valuations are stretched, even high-quality companies may become less attractive.
Portfolios need flexibility
Cash can help manage volatility while investors wait for better entry points. The aim is not to hold cash forever, but to preserve optionality when risk-reward is uneven.
