Inflation and rising interest rates driving investors away from stocks and into cash

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The combination of soaring inflation and monetary policy tightening by the Federal Reserve is leading investors into cash as the stock market continues to decline and fears of a recession grow.

A Bank of America fund manager survey found that investors are now hoarding cash at the highest rate since the 9/11 terrorist attacks, surpassing even the levels set during the Great Recession and the peak of the coronavirus pandemic.

“Stocks are prone to imminent bear rally, but the ultimate lows have not yet been reached,” Bank of America analysts said of the survey results. Lawrence Cunningham, the author of numerous books on classic investing and a professor at George Washington University, said investors are nervous and that it’s natural to ask questions about whether to reallocate assets or change investment strategies but that he thinks those who are currently positioned in a conventional portfolio setup are likely better off just sitting tight.

For instance, during the global financial crisis, the S&P 500 cratered by about 46% from July 2007 to January 2009, but by January 2013, it had already recouped those losses. And by July 2015, the S&P 500 was up by about 40% from where it was in July 2007, prior to the crash.

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