The rich are hoarding cash: Morning Brief

Myles Udland
Markets Reporter

Wednesday, November 13, 2019

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While professional investors dive into the market

Rich people are hoarding cash in their portfolios.

Meanwhile, active investors are now jumping into the market with the most enthusiasm since the election.

And this divergence is a sign of looming market tension in the year ahead as investors continue their radical re-think of the 2020 economy.

In its latest investor watch survey published Tuesday, UBS Global Wealth Management found that wealthy investors still hold 25% of their portfolios in cash, higher than the 5% allocation the firm normally recommends. The survey, which polled more than 3,400 investors in 13 markets, also indicated that 60% of investors would think about increasing their cash holdings further.

And so while 69% of the survey's respondents are "optimistic" about returns over the next decade, almost three-quarters of those polled see the environment as more challenging now than five years ago with 79% saying we're moving towards a period of higher volatility.

Rich investors, in other words, are still bracing for something bad to happen to the economy.

But this more cautious short-term view from rich individuals stands in contrast to the professional investor set that has upped its bets on the market with a 2020 recession getting completely priced out in just the last few weeks.

Bank of America's monthly fund manager survey for November published on Tuesday found that "FOMO" — or "Fear of Missing Out" — has led to a "wave of optimism and jump in exposure to equities & cyclicals."

"The bulls are back," said Bank of America strategist Michael Hartnett.

Cash. (Getty)

As we noted in yesterday's Morning Brief, investors are increasingly placing bets that better-than-expected growth next year will keep powering markets. And by better-than-expected we mean basically any growth at all.

In November, a net 6% of investors said they expect the global economy to improve over the next 12 months, a 43 percentage-point increase from the prior month. This was the biggest one-month jump for economic expectations on record, according to Bank of America.

So while roughly two in three investors polled in October saw the global economy getting worse in 2020, slightly more than half of those polled in November think the global economy will actually improve next year.

Unsurprisingly, cash balances among fund managers fell sharply over the last month and now represent just 4.2% of portfolio holdings, the lowest level since June 2013.

And so the divide here is obvious: the already-wealthy remain defensive and those making active bets on the market are diving in head first.

Of course, the aims of each group differ greatly. Wealth preservation is vastly different than wealth creation. But the enthusiasm gap and sentiment divide between these two important constituencies stands out as the market keeps making new highs while so few are truly enthusiastic.

By Myles Udland, reporter and co-anchor of The Final Round. Follow him @MylesUdland

What to watch today

Economy

  • 7 a.m. ET: MBA Mortgage Applications, week ended November 8 (-0.1% prior)

  • 8:30 a.m. ET: CPI month-on-month, October (0.3% expected, 0.0% in September); CPI excluding Food and Energy month-on-month, October (0.2% expected, 0.1% in September); CPI year-on-year, October (1.7% expected, 1.7% in September); CPI excluding Food and Energy year-on-year, October (2.4% expected, 2.4% in September)

  • 2 p.m. ET: Monthly Budget Statement, October (-$128.2 billion expected, $82.8 billion in September)

Earnings

Pre-market

  • 6 a.m. ET: Luckin Coffee (LK) is expected to report an adjusted loss of $2.90 per share on $1.48 billion in revenue.

Post-market

  • 4:05 p.m. ET: Cisco (CSCO) is expected to report adjusted earnings of 81 cents per share on $13.09 billion in revenue.

Read more

From Yahoo Finance

  • Federal Reserve Chairman Jerome Powell is in Capitol Hill today to kick off two days of testimony before Congress. At 11 a.m. ET, tune into Powell going before the Joint Economic Committee to discuss the economic outlook.

  • Brian Sozzi chats with Dell CFO Tom Sweet. Watch the interview on Yahoo Finance throughout the day from 9 a.m. to 5 p.m. ET.

Top News

SHANGHAI, CHINA - JANUARY 07: A Tesla Model 3 is on display at the groundbreaking ceremony of Tesla Shanghai Gigafactory on January 7, 2019 in Shanghai, China. (Photo by Zhang Hengwei/China News Service/Visual China Group via Getty Images)