Think the Rally’s Done? Think Again

With the market approaching record prices yet again, analysts around the world are starting to get worried – white-knuckling their financial reports in anticipation of a major meltdown, even in the face of what appears to be a prosperous earnings season.

The rip-roaring post-Christmas rally has to eventually run out of steam, and as indexes near “double top” formations, investors may be ready to get the heck out of Dodge.

But while a correction (of some degree) will eventually come, a further surge to new all-time-highs also seems just as likely, simply because of this one crucial truth:

Investors are sitting on a veritable mountain of unused cash.

Surprised to hear that?

It’s something that most people haven’t even considered, especially since the general market is still trading near the top. And usually, when stocks are rising, investors don’t hoard money.

But it’s happening, and almost nobody is talking about it…

…Except for Larry Fink, CEO of BlackRock Inc., one of the world’s largest asset management firms.

“Despite where the markets are in equities, we have not seen money being put to work,” says Fink. “We have record amounts of money in cash.”

He argues that as it stands, equities are at “risk of a melt-up, not meltdown” due to squeamish investors who don’t believe that the market can keep rising.

And while they might be pragmatic in their approach – scared off by 2018’s Q4 plunge – they’re also missing out on all the fun.

If the indexes can rise past their all-time-highs this month, then those “fence-sitters” might finally get proof that everything is a-OK with the stock market. When that happens, they’ll be bringing their rainy-day funds to bear in a big way.

Over the last 30 days, roughly $140 trillion flowed into the market (as reported by the WSJ), while a little over $148 trillion flowed out of it – creating a net loss of almost $8 trillion.

And though there’s a deficit in the market’s cash inflows/outflows right now, that number is narrowing – at a pace of roughly 2% per month. Over that same period, equities have risen almost at the same pace.

The cashflow gap will only get tighter as stocks continue to rise, and when the market reaches new heights, investors (who’ve been patiently waiting) will likely flip the inflow/outflow ratio on its head – right as earnings season gets into full swing.

And if early reports are any indicator, it seems as though we’re in for an unexpectedly strong quarter, providing further evidence that recession fears – which are keeping investors out of the market – have been overblown.

If the Fed can behave itself for the rest of the year, and companies operate with a “business as usual” approach, then there’s no reason that the economic slowdown can’t be curbed somewhat.

We’re seeing it now with the banks, who’ve managed to post record earnings numbers.

And if the tech sector gets in on the action, then every Tom, Dick, and Harry with a savings account will be eager to buy back into equities over the next few weeks.

It’s a shocking turn of events to be sure, especially after the Fed’s hawkish turn late last year, but in the end, it’s proof of just how robust the American economy really is – even during a full-blown trade war with a foreign power.




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