There’s more cash available to buy shares than at any time in almost two decades, a sign to some of the most successful investors that equities will rebound after the worst year for U.S. stocks since the Great Depression.
The $8.85 trillion held in cash, bank deposits and money- market funds is equal to 74 percent of the market value of U.S. companies, the highest ratio since 1990, according to Federal Reserve data compiled by Leuthold Group and Bloomberg.
Leuthold, Invesco Aim Advisors Inc., Hennessy Advisors Inc. and BlackRock Inc., which together oversee almost $1.7 trillion, say that’s a sign the Standard & Poor’s 500 Index will rise after $1 trillion in credit losses sent the benchmark index for American equities to the biggest annual drop since 1931. The eight previous times that cash peaked compared with the market’s capitalization the S&P 500 rose an average 24 percent in six months, data compiled by Bloomberg show.
“There is a store of cash out there that is able to take the market higher,” said Eric Bjorgen, who helps oversee $3.4 billion at Leuthold in Minneapolis. “The same dollar you had last year buys you twice as much S&P 500 as it did a year ago.”
Update: Woops! My apologies. A reader sent me this in the pre-dawn and I didn’t realize it’s some six weeks old.