Investors’ Cash Balances at Record Lows
“A disturbing divergence in market outlooks has emerged in recent weeks, as US retail investors scramble to allocate more cash into the stock market, even as institutions sound the alarm and warn that price gains for the coming quarter will be limited. After the best quarter for the S&P in 5 years, retail investors have flooded back into stocks, drawing down cash balances at brokerage accounts to record lows even as strategists at big banks from Goldman, to Citi, to Morgan Stanley and JPMorgan have recommended fading the rally in American stocks while forecasting the second-weakest year-end period of the market's now-record long bull run.”
The article goes on to say:
"Traditional mid-year election comparisons have also flown out of the window. In midterm years the market starts the year slowly before rallying in the final quarter, with the final three months ending on average gains twice as big as those in non-midterm years. This year has been an outlier, with the S&P starting off January with a blow-off top, then suffering a near correction in February, before rallying another 9% through the end of September, compared with an average loss of 1.7 percent at this time in midterm election years."
According to Cornerstone Advisors' President Steve Williams: "If deposit growth wasn’t hard enough, the fact that retail investors are throwing money late into a stock market bubble doesn’t help. Ironically a stock market correction might hasten recession and potential weakening of credit, but it would provide a shot in the arm with 'safe haven' deposit funding. In this environment, the once passive weekly bank pricing committee needs to be set up like a 'war room' using lots of data regarding deposit fund flows and pricing elasticity of customers. The level of urgency on deposits just got very real."