“If you look at that long-term chart, its unmistakable, people are comfortable holding more cash,” said Keon, the firm’s chief investment strategist. “At the end of a recession, you’ll see a little bit put back to work, but it’s not a major factor in my mind to be optimistic about the economy or the market.”
Drawdowns Looming
The trajectory of the cash stockpile relies on more than just investor confidence, according to JPMorgan Chase & Co. It may also decline in coming weeks because corporate and individual tax payments, delayed until July as part of government support measures, could trigger outflows, and as companies tap the cash to pay down credit lines, say strategists including Alex Roever.
But there’s still reason to expect that investor behavior will eventually follow the pattern of past recessions, when the exit from cash began around market bottoms, according to Deutsche Bank’s Binky Chadha.
This time around, cash continued to accumulate even as stocks surged. But that money is likely to make its way into U.S. shares, assuming the economy continues to recover, he says. That’s one reason he sees greater potential for the S&P 500 to eclipse his year-end target of 3,250, up from about 3,100 now.
“Some people look at the level of the S&P and think that things are all done,” said Chadha, the firm’s chief global strategist and head of asset allocation. “But the money that usually comes out of the typical cash mountain hasn’t even really begun yet, so there is more upside.”