Sunday, May 03, 2020

Investor Cash Continues To Build

This past Friday our webinar looking at contrarian indicators included commentary on the level of cash in money market mutual funds. The below money market chart is an update from the one in the webinar and the chart shows cash levels continue to rise, now equaling $4.73 trillion. Clearly the current cash level is higher than the level reached at the peak of the financial crisis in early 2009.



In March, the actual change in the percentage weight of money market cash to all mutual fund assets is nearly identical to that which occurred in October 2008, a five percentage point increase. This increase may be one sign of investor capitulation as the month of March came to a close.


The market decline in March certainly weighed on fund asset values; however, the decline in asset values was more than the actual decline in the market for the month. A portion of the outflows came from fixed income funds, but international and U.S. equity funds experienced outflows as well. Below shows the change in equity fund assets with the latest reported decline worse than the decline in October 2008.


This final chart shows weekly fund and ETF flows and domestic equity flows turned negative for the week ending 4/22/2020, with international continuing to experience outflows for the last few months.


Broadly, fund flows and mutual fund asset values seem to indicate investors are showing some reservation towards the market. The level of cash in money market funds may provide some downside support for the market if investors are targeting a portion of the cash for stocks. Additionally, as the global economy begins to reopen after the virus induced stay at home orders, this would serve as a tailwind for the economy and likely provide some support for equities too. The more than 26% bounce for the S&P 500 off the March 23 low though seems to have priced in some of this potential good news.


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