Current Stock Prices: Why Trillions of Dollars on the Sidelines Maybe A Good Thing
by Alexander Green, Oxford Club Investment Director
You can’t blame most market investors for being nervous…
- The stock market has done a belly flop.
- Real estate keeps tumbling.
- The economy remains weak.
- Jobless claims recently hit a 26-year high.
Investors have pulled tens of billions of dollars out of stocks and plunked it in the bank.
We are optimistic, nonetheless. Why? Because the bad news is already reflected in current stock prices.
Valuations are attractive. Negative sentiment is a bullish signal, not a bearish one. And all that cash sitting on the sidelines is actually a good thing.
This month we’ll look at why.
We’ll also highlight a world-class biotech firm that will allow you to take advantage of one of the most attractive buying opportunities in almost two decades.
The Worst Year For The Stock Market
Last year was the worst year for the stock market since 1931.
In the second half, investors yanked tens of billions of dollars out of equity mutual funds and squirreled them away in cash accounts paying 1% - or less.
Some analysts see this as a big negative. It’s not.
Today there is more money available to buy shares than at any time in almost two decades. The $8.85 trillion held in cash, bank deposits and money market funds is equal to 74% of the market value of U.S. companies, the highest ratio since 1990, according to the Federal Reserve.
What has happened in the past when cash reached these levels?
- In September 1974, cash on hand reached $604.5 billion, representing a record 1.21 times the U.S. stock market’s capitalization. That preceded a 31% gain in equities between October 1974 and March 1975.
- In July 1982, just as a 20-month bear market was ending, cash as a percentage of the U.S. stock market’s value rose to 95%.
