Cash Isn’t Pouring Into U.S. Shares. What It Means for the Market.

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According to Bank of America, the average institutional equity fund has 4% of its assets in cash. A lower number would be a sell signal.

Dream time

Many investors are already fully invested in the US stock market – a negative signal for stock prices.

Money has not been aggressively pouring into stocks lately, and this trend is unlikely to reverse anytime soon. It may seem counterintuitive considering that tThe market has grown significantly this yearBut fund managers just don’t get a lot of capital to use.

The net cash flow into U.S. mutual funds and exchange-traded equity funds has been around $ 100 billion so far in 2021, according to Citigroup. That’s not weak, but the deluge of money flowing into stock funds that focus on assets outside of the US has more than doubled.

And with Stock trading at a high levelMoney managers don’t seem ready to buy. The average institutional equity fund, which includes mutual funds and ETFs, currently holds a relatively low 4% of its portfolio in cash, according to strategists at Bank of America. A lower value would be a sell signal and an increase of up to 5% would be a buy indicator. The less cash they have, the less willing they are to use that money to buy stocks.

One of the main reasons money doesn’t pile up in equity funds is that households have had the largest proportion of their wealth in stocks for more than 50 years. Household holdings now account for 47% of total assets, according to Citi.

Citi’s data shows that returns will decline in subsequent years as households invest more in the stock market. When investors were last so heavily invested in 1970, the

S&P 500‘s

The calculated annual return over the next 10 years was less than 5%, while the historical average for the index’s annual return is in the high single digits.

Returns have been negative for the decade after 1999, when stock holdings relative to total assets hit another high, rising to their highest level between 1970 and today.

With demand for stocks likely to be limited, “there is no need to pour cash into the asset class,” Tobias Levkovich, chief US stocks strategist at Citi, wrote in a note.

Stocks can go up from here, but this is further evidence that earnings can be unspectacular compared to for years to come The run since the market bottomed on March 23, 2020.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com