Investors are putting their money back into cash as recession looms over markets, according to JPMorgan
- Investors now hold as much cash as they did in the March 2020 pandemic sell-off, according to JPMorgan.
- Cash allocations have soared and stocks have sold off as the risk of recession spreads jitters through the market.
Investors are pivoting from stocks to old-fashioned dollars as major US equity indices linger in bear market territory, according to JPMorgan.
Cash allocations have soared in recent weeks as leading Wall Street banks started to warn about the risks of recession.
Strategists at JPMorgan said sales of stocks last week hit their highest level since September 2020, after the Federal Reserve's decision to hike interest rates by 75 basis points spread jitters through the market.
And investors now hold as much cash as they did in March 2020, when the rapidly-spreading coronavirus pandemic triggered a stock market sell-off.
"Our proxy for the cash allocation of investors globally… rose sharply in recent weeks," the strategists led by Nikolaos Panigirtzoglou said in a note Thursday.
"With investors currently very overweight cash, both equities and bonds should find support into the second half of the year," they added.
Both institutional and retail investors now appear to believe that cash is king in the current bear market for stocks.
The S&P 500 and Nasdaq are down 19.6% and 28.8% respectively in 2022, while the US dollar index — which measures the greenback against a basket of currencies — is up 8.6% year-to-date.
Many of the hedge funds and investment firms that have held up during this year's market bloodbath proactively trimmed their stock holdings in favor of cash. An asset manager who has beaten 91% of his peers during the bear market recently told Insider over 50% of his fund is in cash, with just 3% in stocks.
"We'll take money out of risk any time there's a signal to do so," Sierra Investment Management's Dave Wright said.
Smaller-time traders had been sticking to their "buy the dip" mantra through this year's stock sell-off. But retail investors have finally accepted the reality of the bear market and have started putting their money into cash, according to JPMorgan.
"There's been a trend of weakening demand," strategist Peng Cheng told Bloomberg. "It's fair to say that retail has capitulated."
Many retail investors bought stocks for the first time in 2020, as trading platforms like Robinhood made investing in the market more accessible. They shot to prominence the following year, which saw ultra-bullish posters on forums like Wall Street Bets spark frenzied buying of "meme stocks" like GameStop and AMC Entertainment.
These traders staged a return in the market this week, piling into cosmetics firm Revlon after it filed for chapter 11 bankruptcy, and causing the stock to spike 652%.
But like institutional investors, they're mostly aggressively pivoting to cash, Cheng said, having seen all of their pandemic-era gains wiped out by the bear market.