Cash has been stable as a share of market cap for the past few years, despite share price appreciation, which is a good representation of the degree of cynicism toward the sustainability of the US economic recovery.
Sidelined cash is still relatively high as a share of total stock market capitalization. This measure excludes the large allocations that have been made in recent years to corporate bonds and other fixed income funds and ETFs.
As confidence in the global economic cycle improves, cash holdings should diminish, especially since investors can earn an attractive yield on stocks. Relative to cash returns, the dividend yield spread has been stable since the 2009 spike, reflecting solid dividend growth.
According to our US Equity Strategy service, it would be surprising for equities to peak before the cash mountain has at least declined to the level seen at the 2007 top in share prices, especially since the interest earned is even lower now.