Sidelines

It was a great football weekend. Between the commercials and shots of players roaming around the sidelines, there was a small dose of exciting football. The football is so exciting, it likely distracts from what we really spend most of our time watching. In a recent study, a typical 3-hour game only offered about 11 minutes of actual playing time and over 1 hour of watching players standing around the sideline. ¹

It was appropriately analogous to the markets last week as the NASDAQ slipped into correction territory and the S&P 500 was down almost 9% from peak. Netflix, the iconic recurring revenue play, fell 24% last week and is down over 36% from its year-to-date high. ^{2 3 4}

Yet, it’s the sidelines that we should take a look at. Currently, cash sitting on the sidelines of equity markets are at historic levels.

Cash at commercial banks is sitting at a whopping $3.8 trillion. ⁵

Cash at brokerages is also at a record $1 trillion. ⁶

Cash as a percentage of assets, debt, and equity across all S&P 500 companies is at near record levels. ⁷

Further, cash in money markets is hovering near levels totaling $5.2 trillion. ⁸

The “investor sidelines” is likely where the action will come from in the coming weeks to rescue a flailing equity market.

Combined cash is at approximately $17 trillion and that represents about 38% of total U.S. market cap using the Wilshire 5000 as a proxy.

Perhaps, that is why we could see some massive buying in the coming weeks. It is likely the catalyst that could lead to some pretty quick recoveries when the S&P 500 hits an intra-year dip. ⁹

Some of that cash coming off the sidelines will be driven by the incredible strength in the U.S. Consumer balance sheet. Consumers are sitting on a whopping $162.7 trillion in assets—far surpassing the pre-financial crisis high of $85.1 trillion—with only $18 trillion in liabilities. ⁹

It’s hard to predict how far equity markets can drift but, one potential buffer is the enormous amount of cash sitting on the sidelines waiting to get in the game.

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Tim Phillips, CEO, Phillips & Company

Sources:
1. https://medium.com/knowledge-stew/how-much-playing-really-goes-on-in-an-nfl-game-4d1db2731538
2. https://stockcharts.com/h-sc/ui?s=$COMPQ
3. https://stockcharts.com/h-sc/ui?s=$SPX
4. https://stockcharts.com/h-sc/ui?s=NFLX
5. https://fred.stlouisfed.org/series/CASACBW027SBOG
6. https://fred.stlouisfed.org/series/SCABSHNO
7. https://realinvestmentadvice.com/a-major-support-for-asset-prices-has-reversed/
8. https://www.financialresearch.gov/money-market-funds/us-mmfs-investments-by-fund-category/
9. https://am.jpmorgan.com/us/en/asset-management/protected/adv/insights/market-insights/guide-to-the-markets/