The S&P 500 Index set a record high on Tuesday, completing an unusually swift rebound from the gut-wrenching decline in the fourth quarter. Global stocks are not far behind. Naturally, the question everyone wants answered is where do we go from here. The answer depends on whether markets begin to take heed of what Morgan Stanley describes as the growing number of “glass half empty” signs cropping up around the global economy or if investors sitting on a surprisingly large amount of cash decide they can no longer afford to sit idly by and miss out on a potential “melt up.”
“There’s too much money in cash,” Bob Michele, the chief investment officer of JPMorgan Asset Management, told Bloomberg TV on Tuesday. “It’s been going into cash the last three years waiting for the Fed to finish hiking rates. They were supposed to finish hiking at the end of this year, not last year. That money has yet to come back into the market.” He’s right. At a recent reading of 71.3, State
Street’s monthly index of investor confidence is holding around its all-time low. To put that number in context, the index only got as low as about 82 during the financial crisis and was above 100 — the level at which investors are neither increasing nor decreasing their long-term allocations to risky assets — as recently as last summer. The measure has authority because unlike survey-based gauges, it’s based on actual trades and covers 15 percent of the world’s tradeable assets. Money-fund assets stood at $3.04 trillion as of Wednesday, up from $2.88 trillion at the end of October, according to the Investment Company Institute.
The buildup in money-fund assets between October and March was the most since the period spanning the last three months of 2008 and January 2009. Then again, it’s not surprising that so many investors are so wary, even with unemployment low, inflation under control and the Fed in an accommodating mood.
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