Investors in cash near 15-year high as Wall Street braces for shocks

Mounting uncertainties over a tepid economy, weak earnings, and a more hawkish Federal Reserve is making cash popular again.

Cash levels are inching toward a multiyear high

If cash positions are anything to go by, investors are bracing for a wild ride in the markets.
More fund managers are keeping their money in cookie jars rather than investing, pushing cash levels toward a multiyear high not seen since earlier this year when stocks DJIA, -0.02% SPX, +0.02%  were tumbling, according to a Bank of America Merrill Lynch survey.
Cash levels inched up to 5.5% in May versus 5.4% in April, nearing the 15-year high of 5.6% in February.

Bank of America Merrill Lynch

“If you go down to the woods today, it will be full of bears. Investors [are] positioned for a ‘summer of shocks,” said the bank in its monthly survey of money managers positions released Tuesday.
The survey also showed that only 12% of the respondents were taking “higher-than-normal” risks with most managers crowded into quality assets.
Investors and corporations tend to boost their cash hoards during times of uncertainty.
A tepid economy, weak outlook on corporate profits, and expectations of at least two interest rate increases by the Federal Reserve are all forcing investment managers to be more conservative, said Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch.
On Wednesday, minutes from the policy-setting Federal Open Market Committee hinted that an interest-rate hike could come as early as June.
But the one overriding worry for fund managers this month is the risk associated with the U.K. leaving the European Union, or Brexit as it is commonly referred to as.
Bank of America, along with Goldman Sachs and J.P. Morgan Chase, earlier this week urged investors to rotate out of stocks due to what they described as inflated stock values. The Fed tightening U.S. monetary policy as well as uncertainties over the U.S. presidential election are among the reasons cited by the banks as events that could roil markets.
On Tuesday, Goldman recommended that investors remain overweight in cash, at least for the next three months, due to expectations of increased volatility.
“Key risks include less China growth, a general pick-up of European political risk, a repricing of the Fed rate hike cycle, and commodity price declines,” the economists said in a report.
Goldman also downgraded global equities to neutral from overweight over a 12-month period due to high valuation, noting that unless they see sustained earnings growth, stocks aren't very attractive for now.