Cash may be on the sidelines, but it's not the cavalry
Dow rallies ~1.4%, S&P 500 up ~0.7%, Nasdaq modestly green
Financials lead S&P sector gainers; Comm Svcs weakest group
Dollar advances; gold rises; crude up ~1.5%; bitcoin nears $100k
U.S. 10-Year Treasury yield edges up to ~4.42%
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CASH MAY BE ON THE SIDELINES, BUT IT'S NOT THE CAVALRY
There's a mantra that Wall Street bulls love to toss around, and that is - Don't worry, there's "cash on the sidelines!"
Indeed, it's often said that the nearly $7 trillion in money market assets represents cash poised to come pouring in, or ride to the rescue, and send stocks higher.
That said, Dan Suzuki, deputy CIO at Richard Bernstein Advisors (RBA), decided to take a closer look at this oft mentioned narrative.
"To start, money market funds are just part of the story. Total household cash levels are nearly three times larger, at approximately $18.4tn. For perspective, this surpasses the annual revenues of the combined S&P 500 and nearly matches the federal government's spending over the past three years," writes Suzuki in a note.
According to Suzuki, since 2019, cash levels have risen, but household stock holdings have outpaced them, causing the share of cash in portfolios to decline slightly.
This means that while cash has grown, households have shifted even more aggressively into stocks, underscoring a robust risk appetite. As a result, cash allocations are below long-term averages, while stock allocations are at all-time highs.
Suzuki also argues that the cash-on-the-sidelines narrative doesn’t consider that, more recently, as a result of yield curve inversion, that cash has been an attractive alternative to bonds.
Suzuki's bottom line is that in this cycle there are many things that could drive stocks to new highs, but he thinks cash coming off the sidelines is unlikely to be a key factor.
"Our constructive outlook on stocks is based on further improvement in corporate profit fundamentals, which continue to accelerate and broaden out. Given that investors appear far from underexposed to equities, we expect future market gains to depend more on earnings growth than reallocations from cash."
(Terence Gabriel)
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