Investors’ Extremely Low Cash Balances Raise Red Flags for Stock Market
Investors’ Extremely Low Cash Balances Raise Red Flags for Stock Market. SentimenTrader points out that average cash balances across a wide swath of investor types have fallen to record or near-record low of less than 7%. That’s the second lowest in 40 years. In fact average cash balances among mutual funds is at a record low of 2.5%. Given the combination of the stock markets’ record advances and low interest rates, it would seem logical. although not necessarily rational that investors should be so heavily invested. Why not rational? That’s because the low cash balances leave investors virtually no cushion against potential market volatility. Put another way, the low cash balances mean investors, who historically are wrong, have become overly complacent. That’s despite numerous indications the market is overbought. The chart below shows how low cash balances often precede major cash market declines.