JPMorgan analyst says investors have more cash now than in early days of the pandemic

According to an analysis from JPMorgan, investors have stocked more cash now than they did in the early days of the coronaviruses epidemic.

The implied cash allocation by non-bank investors, based on the stock of the money supply measure M 2 to the stock of financial assets, has risen sharply in recent weeks.

Nikolaos Panigirtzoglou, a London-based strategist at JPMorgan said that both equities and bonds should find support through the second half of the year, with investors currently very overweight cash. After a rough year for both asset classes, that should be a good thing. The S&P 500 SPX has dropped 21% this year, and the S&P U.S. government bond index has dropped 9%. According to Panigirtzoglou, the retrenched investors abruptly last week, it appears to have retreated from the S&P 500 index mini futures positions. His S&P 500 futures position proxy shows that nearly all of the previous post-pandemic position build up in S&P 500 futures has been unwound this year, he said. Panigirtzoglou also examined the performance of stocks and earnings during the past 11 recessions. The median price decline in the S&P 500 is 22% and the earnings per share decline is 17%. In what he calls mild recessions based on whether earnings fell by more or less than the median in the past 11 U.S. recessions, the S&P 500 price decline peak-to-trough is 18% and the EPS decline is 9%, compared to the 33% price drop and 24% earnings fall in deep recessions. While a mild recession seems to be already embedded in the equity market declines this year, a deep recession is not yet in the price, he said.