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More Cash Is In Vogue Now For the U.S Investor Elites

It seems equity markets are becoming too volatile now for the wealthy investor in the U.S. And it may be about more than just the summer blues. 

It’s volatile enough, in fact, that the wealthy are moving back into cash, according to a CNBC survey of American millionaires who said that in the next year they’re more likely to stock up on cash and bonds than equities.  

Markets have been in relatively healthy correction mode, yet wealthy investors aged 55 and under, and investors with $5 million are more, are no longer as keen on automatically pumping money into the stock market.

According to the survey, conducted for CNBC by Spectrem Group back in April (and since then the stock markets have weakened further), short-term income investments are on the increase among the wealthy, while equity investing is decreasing.

And it’s not just those with $5 million. The survey of 750 Americans with $1 million or of investable assets showed a similar pattern.

Of all millionaires surveyed, only 17 percent said they planned on increasing their exposure to equities in the next year, while 25 percent said they planned to increase short-term holdings in that same time period. Some 34 percent of investors with $5 million or more in investable assets said they would also increase short-term holdings.

Among millionaires aged 55 and under, a larger allocation of portfolios will be into cash, money market accounts, CDs, and Treasury bills.

Merrill Lynch said its private client allocations show a surge in T-bill holdings rose to a 10-year high, as seen in the chart below.

And confidence in the S&P 500 is at a temporary low point. Since the last survey in the fall of 2017, according to CNBC, confidence in the US stock market has dropped by 20 points.

Fear Rises as Volatility Rises

Even though we’ve seen larger than normal withdrawals from the U.S. stock market (and global markets too), it doesn’t necessarily mean its time to be bearish. It may just mean that the wealthy are waiting for better opportunities that they’re not seeing right now.

Last month, the U.S. stock market saw a major uptick in the pace of investor selling, while at the same time a lot of money poured into Treasury bills.

According to Merrill Lynch, private client allocations showed a surge in T-bill holdings to a 10-year high:

While risky bonds are still on trend, and because interest rates have risen in the last year, investors are increasingly scooping up municipal bonds, government bonds, and Treasury inflation-protected securities (TIPs).

Reports put the total outflow from U.S. stock funds and ETFs at $24.2 billion last week, compared to a $30-billion selloff in global stock funds.

For the U.S. sell-off, that was the third-biggest outflow in history. For global markets, it was the biggest since the financial crisis, according to CNBC, citing Bank of America.

In reality, however, short-term market fears may only be a result of the Trump-fostered global tariff tit-for-tat that could lead to an all-out trade war that has everyone on edge.

Bank of America’s chief investment strategist, Michael Hartnett, told CNBC that investors are so worried about Trump’s business rigidity that we’re seeing “an unwind of equity positioning and a flight to safety”.

David Craggen, Safehaven.com

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