Stock Market May have a Cash Problem

Published on: 30 Oct, 2017

Stock market investors are running out of cash. The shortage may threaten the long-running bull market which investors are now fully dependent upon. All kinds of investors are suffering from this particular problem. Data compiled by analysts reveal that while the money market assets constitute a dismal 17 percent of the long-term funds, cash balance of equity mutual funds is also at a nadir of 3.3 percent. It is a dire situation by any perception.

Decreasing capital

Many of the largest lenders in the market have also mentioned the dwindling investor capital. Jonathan Pruzan, the chief financial officer of Morgan Stanley, during his company's October 17 earnings call said the cash in the account of clients is at present at their lowest levels. Similar developments were also reported by Bank of America Merrill Lynch strategists. These are circulated only among their high-value private clients. While this phenomenon can be interpreted as confidence among investors, all the world's resolutions have no meaning if there is not much capital to spend. Citigroup has a similar story to tell. In its report, the premier financial institution said that upon the survey of the institutional investors, it was found that the latter hold approximately 2.25 percent of the assets currently under management in the form of cash. This number is the lowest from the beginning of the bull market which started in 2008.

Contrary view

It is to be noted that not all Wall Street banks hold similar negative views. Goldman Sachs is one of them. The financial entity even went on to say they have normal cash holdings. This, according to them, will make the bull market last longer. As per data, investors wanting returns are holding on to cash levels equaling 3.3 percent of the mutual fund assets, as per in tandem with the recent financial history. It is clear that differences of opinion exist in the market.

These happenings make an interesting twist of the stock market landscape. The constant presence of money had buoyed the stock market until now. The last few years have found bulls showing excess capital which have been injected into the stock market, pushing it higher.

These, however, are now past matters. Warning sounds have started to klaxon. It is to be noted that before the downturns in the bear market during 2000 and then 2007, the investors at that time were also holding similar low tranches of cash.


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Marco Zhou



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