SPY Volume Back To 2010 Lows As Equity Mutual Funds Run Out Of Cash

At 112.8 million shares traded, the SPY just recorded its lowest volume day for 2010. One of the possible reasons for this: mutual funds are rapidly running out of cash to buy stocks. As Bloomberg notes, "equity mutual funds are burning through cash at the fastest rate in 18 years, leaving them with the smallest reserves since 2007 in a sign that gains for the Standard & Poor’s 500 Index may slow. Cash dropped to 3.6 percent of assets from 5.7 percent in January 2009, leaving managers with $172 billion in the quickest decrease since 1991, Investment Company Institute data show. The last time stock managers held such a small proportion was September 2007, a month before the S&P 500 began a 57 percent drop, according to data compiled by Bloomberg.

The chart below shows that the entire upswing in ES has occurred on below average volume!

David Rosenberg also has something very comparable to say:

The VIX is at 17; the TED spread at 8bps; CDS has tightened in to six-week lows; the nasdaq and small cap indices have broken out to new recovery highs; oil is back above $82/bbl … and, as charts below from the ICI illustrates, portfolio managers have been so nervous to miss any up-moves that they have run down their cash holdings to 3.6% of assets from nearly 6% a year ago — the largest decline in 19 years. Equity cash ratios are back to where they were in September 2007, just as the stock market was hitting its peak.


Ironically, Bloomberg and Rosie seem to have some rather strikingly comparable (verbatim) thoughts.

Is this merely the preamble to rotation from Fixed Income funds into equities? With a near 70% bounce from the lows, and with fixed income investors traditionally far more cautious than the equity variety, we would be somewhat skeptical to say this is even a remote option.