US Stock Market: Investors switch to cash from stocks and bonds like it's 2022
Investors are selling stocks, bonds, and gold, increasing cash holdings due to the Iran war's geopolitical and macro uncertainty. This mirrors strategies from the Ukraine invasion, with concerns of an energy price shock fueling inflation and promp...
By Bloomberg | Updated:
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Gold has fallen more than 15% since the war began as the prospect of central banks keeping rates steady or hiking them reduces the appeal of non-yielding bullion.
Investors avoiding risks from the Iran war are selling stocks and bonds and rebuilding cash allocations, in an echo of strategies followed after Russia invaded Ukraine in 2022.
Holdings of cash at fund managers has jumped by the most in six years, Bank of America Corp's latest survey of these investors showed this month. Meanwhile, strategists at JPMorgan & Chase & Co. said this week that shifts in positioning in response to the conflict may have much further to run.
"Still-low cash allocations by historical standards present a headwind to both equities and bonds going forward for as long as geopolitical and macro uncertainty remain elevated," the JPMorgan team led by Nikolaos Panigirtzoglou wrote in a note.
The concern among investors is that the energy price shock caused by the war will fuel inflation, pressuring central banks to raise interest rates. Global stocks have dropped 5% in March, while the price of Brent crude oil is on pace for its biggest monthly increase since 1990, trading well above $100 a barrel. Falling bonds have pushed US yields to the highest in months.
Markets that had been expecting the Federal Reserve to cut rates in 2026 now price a 50% chance of a hike by the US central bank by October. In Europe, hopes for lower borrowing costs have been replaced by bets on three quarter-point increases by the European Central Bank this year.
"Investors have been abandoning equities, bonds and gold all at the same time, preferring instead to raise their cash allocations," the JPMorgan strategists said. Even so, cash within portfolios is at modest levels compared to when the Ukraine conflict began, they said.
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Gold has fallen more than 15% since the war began as the prospect of central banks keeping rates steady or hiking them reduces the appeal of non-yielding bullion.
The BofA survey, conducted March 6-12 showed that cash levels surged to 4.3% of portfolios from 3.4% in February. That compares with 5.9% following the invasion of Ukraine and during the Covid pandemic.
