Dwindling Market Liquidity Suggests Low Incremental Demand For Stocks Going Forward

This Measurement Is Often Seen Near Market Tops

Mutual fund (and pension) cash levels are currently at all-time lows, suggesting that equity markets are running out of fuel to move higher. Cash and liquid asset levels are currently below the low levels seen in early 2020, prior to the market collapse. These levels are particularly noteworthy given the gigantic fiscal and monetary stimulus programs of the past year!

The chart supports our belief that the level of incremental buying power available to support markets has dwindled considerably. The combination of low cash levels, record levels of margin debt, and extreme levels of investor optimism (aka complacency) has created a poor risk/reward environment.

Caution is warranted.

We continue to expect a good deal of volatility in the months and years ahead that will produce both great risks and opportunities. The 2020s will be a decade that will reward informed, active investors and will be difficult for passive investors.

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