What could bring the party in US stocks to a close? The S&P 500 has shrugged off a war, inflation fears, poor results from consumer companies and much else besides, mostly on the strength of the country’s tech giants. One extra thing to worry about, though, is that anyone with any cash appears to have ploughed it into the stock market already.
Two closely followed surveys from Bank of America show that institutional investors just notched up their biggest monthly drop in cash allocations for two years and their biggest leap ever in allocations to equities. Cash now makes up 3.9 per cent of their assets. Private clients — individuals with at least $3mn in investable assets, for whom the US bank manages $4.5tn — have less than 10 per cent of their assets in cash, too. That is the lowest since the survey began.
In part, this looks like a response to expectations of rising inflation. Bonds aren’t a great place to be if money tomorrow will be worth less than money today. Allocations to debt are at a record low among rich individuals and a four-year low among institutional investors. Having piles of cash on hand doesn’t work as an inflation hedge either. Equities, on the other hand, are relatively shielded if inflation is caused by red-hot demand, or if demand for products and services holds up despite rising prices.