Wall Street Turns Bullish...On Cash

The SPDR S&P 500 ETF Trust NYSE:SPY closed out its first down quarter in two years in March, and many retail investors bought the dip in stocks in the first quarter in anticipation of a potential rebound.

Bank of America analyst Savita Subramanian said sell-side analysts are also getting bullish, just not on stocks.

Cash Allocations Rising: Subramanian said last week that recommended cash allocations have nearly doubled from one year ago. He said this large uptick in cash allocations is in stark contrast to the long-term trend of analysts recommending investors cut cash allocations, a persistent theme since the Financial Crisis in 2008.

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It's no coincidence that cash allocation recommendations are rising ahead of what will likely be an aggressive Federal Reserve interest rate hike cycle. If 2008 is any guide, cash allocation recommendations may continue to rise. The current consensus cash allocation is 4.1%, but it was roughly 10% the last time the fed funds target interest rate was about 2% back in 2008, Subramanian said.

The bond market is currently pricing in interest rates of 3.25% by mid-2023, according to CME Group.

Bonds Vs. Stocks: Bank of America's Sell Side Indicator for stocks is currently at an 18-month low and is approaching "sell" territory. In addition to raising cash allocations, Subramanian said Wall Street has cut 1.5% from its consensus stock allocations and added 0.3% to its bond allocations.

"We prefer stocks to bonds for growing, inflation-protected yield (dividends) vs. still negative real yields (bonds)," he said.

Benzinga's Take: So far in 2022, selling stocks and raising cash has been a successful trade. The SPY fund is down 3.8% year-to-date, while the Invesco DB US Dollar Index Bullish Fund NYSE:UUP is up 3.2%.

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