September has historically been a seasonally weak month for stocks, and the market’s performance over the past month has certainly burnished that reputation. Dovish comments from key Federal Reserve officials added to market jitters as investors anxiously await their next move. Cleveland Federal Reserve President Loretta Mester said last week that she saw more room for interest rate hikes and that a recession would not hamper central bank activity. With monetary policy tightening in the coming months and Wall Street plunging deeper into the bear market abyss, many investors are beginning to wonder if now is the time to get out of the stock market and put their money into other asset classes. CNBC Pro spoke to market watchers and dug into research from investment banks to find out what the pros think. State Street Ben Luk, chief multi-asset strategist at State Street Global Markets, believes there’s “no point” in investors avoiding equities because “there aren’t many bond markets to go to anyway.” Instead, it’s about where investors allocate their money within the space. “We like defensive companies that pay good dividends. We like energy stocks, material stocks, healthcare stocks, that’s still going to be an area we’re going to stick with in terms of stock preference,” Luk told CNBC Pro. But it takes a “market neutral” approach, where it funds its “overweights” with “underweights” in financials, utilities and retail, thereby maintaining overall equity allocation within the portfolio. He said a portfolio of 50% stocks, 30% bonds and 20% cash is “still doing well” and doesn’t require a “major change” at this time. But he warned that the cash allocation could increase as uncertainty increases. Luke noted that in previous “crisis scenarios” such as the Dotcom Bubble and the 2008 crash, cash levels were between 25% and 30%, compared to the current level of 19%. In the bond space, he believes US Treasuries will benefit the most from capital flows to America as recessionary risks rise. Luk, when it comes to hedging against capital risks, they are the most defensive. The UBS 60-40 balanced portfolio, with 60% invested in stocks and 40% in bonds, has traditionally been the mainstay of a diversified investment strategy. But Kelvin Tay, regional chief investment officer at UBS Global Wealth Management, believes the strategy “could suffer” as the market environment evolves. “We advocate for investors to have alternatives in their portfolios because traditional balanced bond and equity portfolios will suffer as we move from a very low interest rate environment to a structurally higher interest rate environment over the next five years. This year has been a really telling one,” he said. Investors need exposure to private equity, private debt and hedge funds to “anchor” the portfolio. Tay noted that macro hedge funds do “really well” because of the flexibility to adjust their holdings, while private equity’s longer investment horizons mean “returns are usually better” if investors hold them longer. BlackRock Meanwhile, BlackRock, the world’s largest asset manager, said in a Sept. 26 note that it has a bearish outlook on stocks. “Many central banks are underestimating the scale of the recession needed to bring inflation down quickly,” Jean Boivin and a team of strategists at BlackRock Investment Institute said in a note. “The markets haven’t priced it in, so we avoid most stocks.” He said he doesn’t see the Fed introducing a soft rate hike, which would in turn create more volatility and pressure on risk assets. “We’re tactically underperforming market stocks because stocks don’t fully price in recession risks…We favor investment-grade credit because yields better offset default risk. Plus, high-quality credit weathers recessions better than stocks. We’re inflation-adjusted.” – Correlated bonds are more attractive and be cautious about long nominal government bonds in a persistent inflation environment,” said Boivin. Goldman Sachs Goldman advises investors to prefer short-term stocks over long-term stocks. Goldman strategists led by David Costin issued a September 23 “Stocks with cash flows heavily weighted toward the far future are more vulnerable to interest rate swings through higher interest rates,” they said in the note. Rising interest rates mean the short term will outperform the long term. Strong balance sheets, high return on equity and own stocks that have “Quality” attributes like steady sales growth,” he said. The bank’s “short basket of stocks” includes Macy’s, General Motors, Warren Buffett’s favorite Occidental Petroleum, Regeneron Pharmaceuticals, Micron, Advanced Micro Devices and Valvoline. The stocks that make up Goldman’s “high quality basket” include Alphabet, O’Reilly Automotive, Home Depot, Thermo Fisher Scientific and Accenture.