One of the common arguments for the continuation of this bull market is that investors have record amounts of excess cash sitting on the sidelines just waiting to be invested. Once confidence returns to normal, the logic goes, allocators of capital will deploy the excess cash into the stock market which will be the tailwind needed propel this bull into the next phase.
It's a nice story, but unfortunately the facts just don't support this line of reasoning. The best method we know of to get a sense for investor cash allocations is to analyze mutual fund data published by the Investment Company Institute. Those data show that, far from cash allocations being near a record high, the cash allocation is at or near a record low! The next three charts below clearly show this point. The first shows that mutual fund and ETF assets combined have four times more assets than money market funds, which is a record. The second shows that money market fund assets as a percent of total stock market capitalization is at a record low. The third chart shows that the cash allocation of all equity funds combined is near a record low. Given this data it is certainly hard to argue that there is abundant cash available that is waiting for the opportune time to be deployed into stocks.
**Charts courtesy of Sentiment Trader**