Mountains of Cash Starting to Trickle Back

August 6, 2009 at 4:00 am 1 comment

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The month of July was an interesting month because investors opened their 401k and investment statements for the first time in a long while to notice an unfamiliar trend… account values were actually up. Like a child that has burnt their hand on a stove, the wounds and memories are still too fresh – more time must pass before investors decide to get back into the market in full force.

As you can see from the charts below, as investors globally panicked throughout 2008 and early 2009, money earning next to nothing in CDs and Money Market accounts was stuffed under the mattress in droves. The fear factor of last fall has caused current liquid assets to stand near 10 year highs at a level near 120% of the S&P 500 total market capitalization (Thomson Reuters) and at more extreme levels last fall if you just look at Money Market assets (bottom chart) . Now that the Armageddon scenario has been temporarily put to rest, we’re starting to see some of that cash to trickle back into the market. The silver lining is that there is still plenty of dry powder left to drive the market higher – not overnight, but once sustained confidence returns. If the earnings outlook continues to improve, come the beginning of October when 3rd quarter statements arrive in the mail, the pain of not being in the market will overwhelm the fear of burning another hand on the stove like in 2008.

Cash as Pct of SNP500

It is funny how the sentiment pendulum can swing from the grips of despair a year ago. There is still headroom for the market to climb higher before the pendulum swings too far in the bullish direction – if you don’t believe me just look on the horizon at the mountain of cash.

Source: SentimenTrader.com (Fall 2008)

Source: SentimenTrader.com (Fall 2008)

Wade W. Slome, CFA, CFP®

Plan. Invest. Prosper.

Entry filed under: Financial Markets. Tags: , , , , , , , , .

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1 Comment Add your own

  • 1. Cash Pile Still Growing « Investing Caffeine  |  January 12, 2010 at 10:18 am

    […] at relatively high long-term interest rates). Bankers are not the only people stockpiling cash (see other article on cash). On the capital raise side, larger corporations have had more success in tapping the capital […]

    Reply

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