Investors Pile Into Cash on Market Fears

Concerns that more losses may lie ahead for equity markets have investors piling into cash.  A survey from Bank of America shows investors moving into cash at a torrid pace as the outlook for global growth plunges and stagflation worries mount. 

The Bank of America survey of investors with $872 billion under management shows that cash levels among investors rose to the highest since September 2001.  The survey also showed that hawkish central banks are seen as the biggest risk, followed by a global recession, while stagflation worries have risen to the highest since 2008.

The survey results are not encouraging for global stocks, which have already suffered the longest weekly losing streak since the 2008 financial crisis as of last week.  While stocks are currently in the midst of a mild rebound as valuations get more attractive, Morgan Stanley says that more losses lie ahead for stocks.  Also, Bank of America said with more rate hikes expected from the Fed, the market isn’t yet at “full capitulation.”

The survey also showed that technology stocks are in the midst of the biggest “short” since 2006. High valuation technology stocks have been particularly hit in the latest selloff amid concerns about future earnings as interest rates rise.  Fund managers are most underweight equities since May 2020 as they exit equity holdings and park assets in cash. 

Some strategists say that the stock market is overpricing recession risk more than debt markets. JPMorgan Chase says U.S. and European stock markets are pricing in a 70% chance that the economy will slide into recession in the near term.  That compares with a 50% chance priced into the investment-grade debt market and 30% priced in by high-yield debt.  JPMorgan said, “our view remains that the probability of a recession over the next 6-12 months is low and thus stay with a pro-risk stance.”