More U.S. Investors are Holding Cash: Does it Mean a Shaky Dow Jones is Still Very Weak?

Journalist:
January 22, 2019

From CCN.com: Since January 3, the Dow Jones has recovered by 8.9 percent from 22,868 points to 24,706 points, fueled by the increasing optimism towards China-U.S. trade talks.

However, WSJ has reported that the cash holdings of investors in the U.S. are growing at an unprecedented rate, citing the data provided by Thomson Reuters Lipper.

Why Investors are Seeking For Cash and What it Means to the Dow Jones

In a bear market or a correction, cash often remains as the strongest performing asset class.

In December 2018, the Nasdaq Composite briefly declined by 20 percent from its all-time high to gain a bear market status. The Dow Jones was still 2 percent clear but it was a few hundred points away from dropping by 20 percent from its yearly high.

The majority of investors in the U.S. market still believe that the momentum from early 2018 will extend in the long run and the bull market will resume by the latter half of 2019.

In the short-term, investors remain uncertain about the future performance of the U.S. stock market and the Dow Jones, especially considering that there exists a possibility of the fallout of a comprehensive trade deal between the U.S. and China by March 1.

Speaking to CNBC, Standard Life Aberdeen co-CEO Martin Gilbert said that the geopolitical risk between the two countries has created lots of uncertainties in the global market.

“(There’s) a lot of geopolitical risk between the U.S. and China — certainly we are in a worse place than we were a year ago,” Gilbert said.

In the fourth quarter of last year, investors withdrew more than $100 billion from the stock market, during a period in which the intensity of the trade war hit its peak and the Federal Reserve hinted at the increase in interest rates.

The Dow Jones has rebounded strongly in a short period of time but according to a retail investor Jerry Freund, investors are nervous about the potential vulnerabilities of the stock market and the lack of fundamentals that may leave U.S. markets vulnerable to a correction.

Freund said:

A lot of people think the party will always go on, but they aren’t aware how bad it could get.

Major Conglomerates are Letting Employees Go

A fairly large number of conglomerates in the U.S. are yet to release their earnings reports. So far, companies in the likes of Tesla, Apple, and Morgan Stanley fell short of Wall Street expectations.

This week, State Street, one of the largest investment firms in the U.S., officially announced its decision to let go some 1,500 employees to cut $350 million in expenses. The unforeseen cut of jobs by the firm demonstrated the struggles of investment firms following a highly volatile quarter in 2018.

Major US investment firm State Street announced layoffs as a cost-cutting measure earlier this week.

State Street CEO Ronald O’Hanley said:

Market dynamics are changing for our clients. The resulting margin compression for investment managers has led them to increase pressure on their providers.

Tesla has also laid off more than 3,000 employees to increase the production rate of its Model 3 and to maintain a competitive price for its models.

With the earnings reports of many conglomerates yet to be released and the uncertainties in the China-U.S. trade deal, investors remain concerned about the short-term performance of the Dow Jones and U.S. markets in general.

Joseph Young @iamjosephyoung

Hong Kong-Based Finance Analyst. Contributing regularly to CCN and Hacked. Providing unique insights into the fintech space since 2012.