Wall Street Finds New Value in Cash as Global Fears Weigh on Markets

Worries about the war in Ukraine, China’s Covid-19 outbreak, a US or European recession and surging global inflation are making a long-spurned asset popular with Wall Street’s top money managers these days: cash.

As stock and bond prices have withdrawn from records in the tumult of headlines, more asset managers said they are Looking to move funds into low-risk, cash-like assets. That marks a shift from recent years, when steadily climbing equity indexes trained investors to buy every dip and not miss out on gains by holding cash.

Rick Rieder, managing director at BlackRock Inc.,

said the world’s largest asset manager is increasing cash holdings by more than 50% in many portfolios to a weighting that is “much, much higher” than it had been in years past. With central banks battling inflation by raising interest rates across the world, he expects stock prices to remain volatile for the next two to six months.

“For now, one of the most attractive things you can do is have patience, and if you can get paid to have patience that’s a pretty good place to be,” Mr. Rider said.

Prime money-market funds’ holdings in the Americas rose from just under $146 billion in February to $193 billion in March, their highest levels of the year, according to data from the Investment Company Institute. Many expect such holdings to keep rising as rates on money markets, short-term bonds and other cash-like investments climb with interest-rates set by the Federal Reserve.

Additionally, yields on 10-year US Treasury notes rose last week above the rate of projected average annual inflation over the next decade for the first time since March 2020. That means investors can once again earn a return on risk-free US government bonds and it is meaningfully more expensive for companies to borrow money.

These developments are testing the long-held market view that there is no alternative to US stocks, which is often referred to using the acronym “TINA.” The lack of alternatives was “one of the biggest bull mantras for the equity market,” said Ohsung Kwon, US equity strategist at Bank of America.

“If the cash yield really hits 3%, I think that the TINA argument really diminishes,” Mr. Kwon said. “That is obviously not the best environment for risky assets.”

In recent years, the S&P 500’s dividend yield, which measures the annualized payouts by companies in the index as a proportion of their share price, has exceeded the yield on bond maturing in 10 years or more. Moreover, stocks have delivered almost triple their historic return since 2009, meaning they offered both the income of bonds and the potential for greater gains—a compelling argument for portfolios to be overweight on US equities.

There is an investment that is 100%-backed by the US government, never loses its value and is paying more than 7% interest a year. So why haven’t most Americans heard of Series I savings bonds? WSJ’s Dion Rabouin explains. Photo: TNS/Zuma Press

Bank of America is expecting the Federal Reserve to raise US interest rates to 3% by early next year from their current level of 0.25% to 0.50%. That would produce a similar rate for cash-like assets such as money-market funds, which track short-dated Treasurys, high-quality investment-grade bonds and commercial paper. That rate would be more than double the current 1.4% dividend yield of the S&P 500.

Even though rates are well below that today, fund managers said they are ready to move into cash. Bank of America’s April survey of global asset managers showed cash holdings are near the highest level since April 2020, which was the aftermath of the Covid-driven market selloff, and cash is one of the survey’s most popular trades.

Gaurav Mallik, chief investment strategist and global head of client solutions at State Street Global Advisors, said portfolios at his firm are holding at least 50% more cash than they did at the beginning of the year, with increased focus on “keeping dry powder” by holding cash and money-market funds.

“Cash is king right now in terms of the return you’re getting,” Mr. Mallik said.

The TINA narrative is drawing other challenges. Floating-rate debt, which pays increased-rate interest as short-term borrowing costs rise, has garnered more attention recently, as have Treasury inflation-protected securities. While bond prices have fallen, hurting investors who held them already, those lower prices mean higher payouts that are attractive to new investors.


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In addition, fund managers and consultants said they are getting more questions from clients about vehicles such as savings bonds. Rich Steinberg, chief market strategist at the Colony Group, said that as inflation started rising last year he began fielding inquiries about Series I savings bonds, which track the consumer-price index and will offer a yield of 9.62% in May. He purchased the maximum $10,000 investment each for himself and his wife.

Mr. Steinberg has increased holdings of cash and is looking to put more money in short-dated US Treasury bonds if the Fed continues its expected path of raising interest rates to at least 2% by year-end.

“If the Fed follows the game plan that they’ve started to communicate, I think the TINA days are numbered,” he said.Write to Dion Rabouin at [email protected]

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