“Stocks are more expensive than cash,” Ed Clissold, chief U.S. strategist at Ned Davis Research Inc., said on Bloomberg Television’s The Close. “You really have to try to find companies that will grow quickly to justify owning a risky asset like stocks instead of just sitting in cash and collecting a risk-free 5.5 per cent.”
While still sitting on double-digit year-to-date gains, that logic has dragged the S&P 500 five per cent lower so far in September, putting the index on track for its worst monthly performance of 2023. Pain intensified last week, when Fed chair Jerome Powell signalled that the central bank will keep policy restrictive “for some time” to push theback to the central bank’s target of two per cent, keeping borrowing costs high in the process.
“If I can earn, say, 5.5 per cent in a risk-free investment, particularly if I believe that there’s going to be a lot of volatility in the stock market, heck yeah, absolutely,” David Spika, president and chief investment officer of GuideStone Capital Management LLC, said. “The good news is there are options for investors — you don’t have to take the risk of the equity market — you can benefit from the yields we’re seeing in fixed income and money markets.
While higher rates are boosting the allure of cash, they’re one of the biggest concerns plaguing stock bulls at the moment. Funding costs are growing increasingly expensive as inflation-adjusted yields hover near decade-highs, threatening to pressure companies big and small. That’s feeding into concerns over tech shares because their long-term earnings prospects now have to be discounted at higher rates.
Given that backdrop, hedge funds are ramping up their bets against stocks, driving net leverage to the lowest levels since the depths of the pandemic. Meanwhile, a Goldman Sachs Group Inc. basket of the most-shorted stocks is down more than 11 per cent this month, handing bears a handsome profit.
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