Franklin Templeton strategist advises moving away from cash and into fixed income.

Stephen Dover, Franklin Templeton's chief market strategist, advised investors to shift from cash to fixed income investments with some duration.

Franklin Templeton's inflation forecast is more conservative than the U.S. Federal Reserve's. The investment firm expects the core personal consumption expenditures price index to fall to 2.7% by the end of the year, while the U.S. Federal Reserve projects it to be 2.4%.

The biggest issue in the markets is the $6 trillion currently sitting in money market funds, according to him. He advised investors to move out of cash and take a duration move into fixed income.

Fixed income and rate cuts

Franklin Templeton anticipates that fixed income will "significantly benefit" from interest rate cuts in 2024, as stated in their Global Investment Manager Survey published on Feb. 6. According to the survey, two-year Treasury yields are predicted to "drop significantly," while 10-year yields are expected to "move slightly lower."

Franklin Templeton wrote in a survey report that investment-grade debt will be favored due to its higher credit quality as default rates for high-yield debt continue to increase towards their historical average. Investment-grade bonds are usually more appealing during economic downturns.

The report stated that municipals will remain a high-quality, diversifying investment option with tax-free yields, and are expected to provide total returns of about 4% this year.

High-yield spreads in the U.S. are predicted to end 2024 at 423 basis points, an increase from the current 338.

The report stated that default rates are currently close to their historical average of 3.5%, which will be reached in 2024.

Dover warned that while many have shifted from cash to the stock market, it's important to exercise caution.

"That big jump really increases dramatically their risk," he said.