There’s been a “steady” decline in the growth of net operating cash flow in U.S. stocks, excluding the financial and energy sectors, the French bank’s analysts highlighted in a recent note. (Financials have benefited from rising interest rates, while oil companies have been bolstered by the increase in crude prices.)
The slowdown for the broader group of companies is noteworthy because it’s coincided with both a slump in the dollar and a decline in the yield curve, said the strategists. An inverted yield curve, which will occur if the trend continues, has historically come before economic slumps like the one that started about 10 years ago. And a falling dollar could reflect relatively more positive investor sentiment about economies outside the U.S.
“If the cash-flow growth signal is correct, and that reinforces the yield-curve view” of the U.S. outlook, “then equity markets could be in for a nasty surprise,” according to SocGen.
- “People ask ‘well what will trigger it (a market correction)?’ But it doesn’t need a trigger, it’s the dynamics of bubbles inherently makes them come to an end eventually,” he said
- Shiller, who won the Nobel Prize for Economics in 2013 for his work on asset prices and inefficient markets, said that markets could “absolutely suddenly turn”
Stock markets might be continuing their run higher this year but Nobel Prize-winning economist Robert Shiller told CNBC Tuesday that a market correction could come at any time and without warning.
“People ask ‘well what will trigger it (a market correction)?’ But it doesn’t need a trigger, it’s the dynamics of bubbles inherently makes them come to an end eventually,” he said.
On Monday, the Dow, S&P 500 and Nasdaq composite rose to all-time highs after members of the U.S. Senate reached a short-term compromise on the budget to keep the government open through to February 8. The new all-time highs come after a robust year for U.S. equities in Donald Trump’s first year as president. Perhaps the largest boost for equities during his tenure so far was the overhaul of the U.S. tax system that saw corporation tax slashed from 35 percent to 21 percent.
The investment industry usually operates on a simple piece of logic: money managers pitch to their clients and persuade them to stump up cash. But when CVC Capital Partners, the private equity group best known for the 2005 takeover of Formula One, set out to raise a new fund last year, the investors were the ones begging to gain access.
Europe’s largest buyout fund rented some 20 rooms at the Savoy Hotel in central London at the start of last year as investors pressed the flesh with senior managers. Treated more like celebrities than investment managers, CVC’s star dealmakers were on display for investors wishing to buy into the heavily oversubscribed fund.
“Every 45 minutes we would swap over,” says a long-time investor in CVC funds, each time meeting a different executive in the hope that they would let them in their fund. “We make sure managers like us and keep us. It’s hard to get [our] money in the door these days.”
Morgan Stanley said last year that client cash levels are at record lows.
We noted previously that the cash balance of equity mutual funds is at an all-time low 3.3%.
And now, with his share price at 52-week highs after beating earnings, TD Ameritrade CEO Tim Hockey confirms this extreme level of complacency in today’s earnings call…
“While cash levels are up slightly sequentially to approximately $150 billion, cash as a percentage of total client assets remained at historic lows at 12.7%, down slightly from last quarter due to the growth in the value of investments and as a result of strong net buying from our retail clients…”