Cash is an Asset, the Bulls are Hoarding It

Cash is an Asset, the Bulls are Hoarding It

Cash is an Asset, the Bulls are Hoarding It


Stocks are stuck in a trading range, and active funds are hemorrhaging assets.

To The Bulls, a stock market that is suddenly making distinctions between Winners and Losers is just the thing to draw in cash that by some measures is the highest in 15 years among investment funds.

Money will be unleashed after the US Presidential election on 8 November.

Holding extra cash in case of a surprise seems more prudent to a lot of managers. Once done, they may go back to their favorite companies and sectors. That will be the primary focus as they try to make gains going into year-end.

The reputation of stock-picking managers has taken a beating in Y 2016, capped by news Friday that 7 top asset managers reported a total of $50-B in Quarterly withdrawals, most of it from active funds.

A measure of redemption may be possible in the months after the Election, a frame when the S&P 500 has risen an average of 0.6%.

Between the Presidential politics, interest-rate handicapping by Fed officials and earnings season, no signal has been strong enough to move US stocks out of their tightest trading range in 10 years.

Over the period since 8 July, the S&P 500 Index has swung back and 4th within a 64-pt range alternating between gains and losses for 9 days running.

But while the market churns, stocks within it have gotten more lively. A measure of 30-Day realized correlation among S&P 500 constituents has eased 34% since reaching a 4-year high in October 2015.

According to Bank of America Corp. (NYSE:BAC), the proportion of large-cap funds beating their benchmarks reached 58% in Q-3, compared with 18% in 1-H. That marked the best period since Q-2 of Y 2015, and the 2nd-best since the start of Y 2009.

Among growth funds, 71%exceeded returns on the Russell 1000 Growth Index, while 63% of value investors beat their benchmark. It was the most since Y 2013 for both groups.

The improvement has come at a time when Bullishness among individual investors is in short supply. Almost $100-B has been yanked from mutual and ETFs tracking US  stocks since January, an almost unprecedented rate. Perhaps reflecting the possibility of more withdrawals, cash balances at money managers are the highest since Y 2001.

Fund managers are currently holding 5.8% of their portfolios in cash, the most since the period after the 11 September 2001, terrorist attacks, according to a survey conducted by Bank of America Corp. The level was matched in July after the UK voted to leave the EU.

An S&P 500 rally would match Wall Street expectations.

The median forecast of 19 strategists sees the index finishing Y 2016 at 2,175, a 2.2% gainer from Monday’s close.

Based on current odds, the US could be headed for an election in which 1 party wins the White House while also gaining at least one US Senate seat and 20 House seats. That has happened 6X  since Y 1932, after which the S&P 500 fell by 2% in the following month, and 4% over 3 months

US stocks got a jolt Friday after the FBI discovered e-Mails that may pertain to its investigation of Hillary Clinton.

While, the S&P 500 dove 40 pts within 40 mins of the announcement, futures on the index are trading little changed Monday evening.

Monday, the major US stock market indexes finished at: DJIA -18.49 at 18142.70, NAS Comp -0.97 at 5189.13, S&P 5000.22at 2126.19

Volume: Trade was heavy with about 1.03-B/shares exchanged on the NYSE

  • Russell 2000: +4.9% YTD
  • DJIA +4.1% YTD
  • S&P 500 +4.0% YTD
  • NAS Comp +3.6% YTD
HeffX-LTN Analysis for DIA: Overall Short Intermediate Long
Neutral (-0.15) Neutral (-0.19) Bearish (-0.42) Neutral (0.15)
HeffX-LTN Analysis for SPY: Overall Short Intermediate Long
Bearish (-0.25) Neutral (-0.16) Very Bearish (-0.52) Neutral (-0.08)
HeffX-LTN Analysis for QQQ: Overall Short Intermediate Long
Neutral (-0.04) Neutral (-0.05) Neutral (-0.21) Neutral (0.12)
HeffX-LTN Analysis for VXX: Overall Short Intermediate Long
Neutral (-0.16) Neutral (-0.07) Neutral (-0.02) Bearish (-0.38)

Stay tuned…

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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