Coronavirus has big-money investors hoarding most cash since 9/11

Cash levels spiked to 5.9% in April

Big money managers rattled by the economic fallout from the COVID-19 pandemic have accumulated more cash than at any point since the Sept. 11, 2001, terrorist attacks on the U.S., according to a new investor survey.

Cash holdings spiked to 5.9 percent in April, up from 5.1 percent the prior month, their highest level in almost 19 years as investors look ahead toward what they see as a U-shaped recovery from what may be the steepest economic contraction since World War II.

The stampede into cash “shows extreme investor pessimism,” wrote Michael Hartnett, chief investment strategist at Bank of America. He says any number above 4.5 percent is a “contrarian ‘buy signal’ for risk assets.”

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The Charlotte, N.C.-based lender surveyed 183 participants with $545 billion in assets under management between April 1 and April 7. The survey was conducted just over a week after the S&P 500 put in its bear-market low of 2,237 on March 23.

Harnett noted that as fund managers built up cash reserves, they pulled money from equities. The survey found equity allocation plunged 29 percentage points during the month to a net 27 percent underweight, the lowest since the S&P 500 bottomed at 666 during the depths of the financial crisis in March 2009.

However, allocation to U.S. equities climbed by 12 percentage points to a net overweight of 15 percent, reclaiming its spot as the most preferred region after five months of trailing emerging markets.

Harnett says “peak pessimism” sets the benchmark S&P 500 up for “one last leg up in the risk rally,” but that investors should look to take profits in the 2,850-3,000 area, or 3.2 percent above where the index settled on Monday.

Thirty-one percent of big-money investors say long Treasurys is the “most-crowded” trade, followed by long cash (20%) and long the U.S. dollar (18%). Long trades are essentially bets that the value of an asset will increase.

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Meanwhile, 90 percent of fund manager survey respondents say credit default risk poses the largest threat to the financial system while 57 percent of investors say a second wave of coronavirus cases represents the biggest “tail risk” for markets.