One of the areas that we’re keeping our eye on as an investment team is the level of cash on the sidelines in the marketplace. This chart does a great job of helping us gain some historic perspective to that. If we look all the way back to the great financial crisis, we saw a big increase in cash, and right after that we actually saw the market trough, or the market bottom, in the S&P 500. A lot of this is because people are nervous about the markets, and then we start investing some cash back into the marketplace. You saw it again during the pandemic in 2020, where this time, however, we actually saw the market bottom before we saw the peak in cash. Some of that was just because of the pace at which everything was unfolding during that time.
Looking ahead to today, we are again at peak cash levels on the sidelines, and while that can provide a lot of opportunity for the marketplace, if we look back historically, there can be really attractive returns in the stock market when we look out three or even six months after that. But it’s hard to tell in the moment whether or not we’ve seen the trough already or it’s still yet to come. So we’re balancing both the tailwinds that we’re seeing in the possible risk of recession coming forward, because there certainly is a case for that, with the opportunity, knowing that there is a lot of cash on the sidelines. So from our chairs, it’s important to keep a balanced approach and help our clients stay invested in alignment with their specific asset allocation to their investment objective.