Investors have stored more cash now than in the early days of the coronavirus pandemic, according to an analysis by JPMorgan.
The implicit allocation of cash by non-bank investors, based on the stock of the measure of money supply known as M2 to the stock of financial assets, has risen sharply in recent weeks.
“With investors currently heavily overweight in cash, both stocks and bonds should find support during the second half of the year,” said Nikolaos Panigirtzoglou, a London-based strategist at JPMorgan.
This should be a help after what has been a tough year for both asset classes. The S&P 500 SPX,
it has fallen 21% this year and the US government S&P bond index has fallen 9%.
Leveraged investors appear to have fallen sharply last week, Panigirtzoglou said, judging by their estimate of S&P 500 index mini futures positions. “Our S&P 500 futures position proxy suggests that almost all the previous position after the pandemic accumulated in future S&P 500 has been deactivated this year “, he said.
Panigirtzoglou also looked at stock performance and earnings over the last 11 recessions. The average peak price drop in the S&P 500 is at least 22% and earnings per share are down 17%. In what he calls mild recessions, depending on whether earnings fell more or less than the median in the last 11 U.S. recessions, the fall in the price of the S&P 500 is 18% and the fall in BPA is 9%. compared to the 33% price drop and the 24% gains fall in deep recessions.
“While a slight recession seems to be already embedded in this year’s stock market crashes, a deep recession is not yet in the price,” he said.