Investors hold cash, sell stocks as recession looms: JPMorgan
- According to JPMorgan, investors are now holding as much cash as they did during the March 2020 pandemic sell-off.
- Cash allocations soared and equities sold off as the risk of a spreading recession wavered in the market.
- Retail investors, one of the most bullish groups in the market, are finally turning to cash as sentiment turns bearish.
Investors switch from stocks to old-fashioned dollars as major U.S. stock indexes linger in
territory, according to JPMorgan.
Cash allocations have soared in recent weeks as major Wall Street banks have begun to warn of the risks of
JPMorgan strategists said stock sales last week hit their highest level since September 2020, after the Federal Reserve’s decision to raise interest rates by 75 basis points sparked jitters on the market.
And investors are now holding as much cash as they did in March 2020, when the fast-spreading coronavirus pandemic triggered a stock market sell-off.
“Our proxy for investor cash allocation globally … has increased sharply in recent weeks,” the strategists led by Nikolaos Panigirtzoglou said in a note on Thursday.
“With investors currently very overweight in cash, stocks and bonds should find support in the second half of the year,” they added.
Institutional and retail investors now seem to believe that cash is king in the current equity bear market.
The S&P 500 and Nasdaq are down 19.6% and 28.8% respectively in 2022, while the US dollar index – which measures the greenback against a basket of currencies – is up 8 .6% since the beginning of the year.
Many hedge funds and investment firms that weathered this year’s bloodbath have proactively reduced their stock holdings in favor of cash. An asset manager who beat 91% of his peers during the bear market recently told Insider that more than 50% of his fund is in cash, with just 3% in stocks.
“We will take money out of risk whenever there is a signal to do so,” said Dave Wright of Sierra Investment Management.
Small traders stuck to their “buy the dip” mantra in this year’s stock sell-off. But retail investors finally accepted the reality of the bear market and started putting their money in cash, according to JPMorgan.
“There has been a weakening trend in demand,” strategist Peng Cheng told Bloomberg. “It’s fair to say that retail has capitulated.”
Many retail investors bought stocks for the first time in 2020 as trading platforms like Robinhood made investing in the market more accessible. They rose to prominence the following year, which saw ultra-bullish posters on forums like Wall Street Bets trigger frenzied buying from “meme stocks” like GameStop and AMC Entertainment.
Those traders staged a comeback in the market this week, piling into cosmetics company Revlon after it filed for Chapter 11 bankruptcy, and sending the stock soaring 652%.
But like institutional investors, they are turning mostly aggressively to cash, Cheng said, after seeing all of their pandemic-era gains wiped out by the bear market.
Read more: Cash is king for retail traders right now, according to 7 investors who expect a prolonged bear market for stocks, bonds and cryptocurrencies