Is Cash Signaling an Opportunity?

Posted by Tim Hope on 9/4/08 10:17 am

With the stock market currently struggling through a rough patch, it can be instructive to examine a ratio of cash levels (as measured with money market assets) relative to the market.  The reason is that such a measure can help to identify the degree to which liquidity is available as fuel for market advances.  Currently, cash assets on the sidelines are at a level that has not been seen in over 25 years.  Given that after taxes and inflation money market fund returns are, likely to be negative or close to it, equity investors may find that the opportunity cost of sitting in cash will look less and less attractive.  Of even greater interest for investors is that the last time cash levels were so high, the S&P 500 more than doubled in the following three years.

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