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Key Points

  • Uncertainty and government stimulus have put roughly $3.5 trillion into bank accounts.
  • For investors and traders, the CNN Fear & Greed Index seems to highlight less fear than bank balance cash balances indicated. A mean reversion is coming.
  • Once consumers feel more certain about their health and job security, a wave of spending should be unleashed which should drive equity markets to all-time highs.

Presently, there is about $3.5 trillion in bank accounts earning nothing for investors. With the Federal Reserve (Fed) keeping interest rates low for as long as they can and financial services companies refusing to pay anything on their deposits, sitting in cash can be a very detrimental thing. It might make you feel good, but it certainly won’t offer you much return.

Because of the Covid-19 virus and the uncertainty surrounding our health and prosperity, it is completely understandable to hoard some cash for a rainy day. Before the crisis began, the average consumers’ rainy-day fund was largely depleted. The reverse is now true. Over time, the truth always lives somewhere in the middle.

The image below from the St. Louis Fed shows the cash in checking accounts going parabolic. As many investors know, parabolic is not a sustainable phenomenon and when a catalyst intersects with a parabolic trend, a trend reversal is often the result. For this crisis, that catalyst seems to be a reduction of uncertainty across a variety of important topics: health and well-being, job security, the continuation of federal assistance programs, etc. No one has a crystal ball but I know with a high degree of certainty that when some calm and certainty is restored in consumers’ lives, their high checking account balances will fall and this money will shift into interest bearing accounts, investment portfolio’s (stocks and bonds), long term savings plans and more discretionary spending. I have my eye on a host of the brands that will greatly benefit when this uncertainty is removed. There’s a lot of money to be made in the pent-up demand basket.

Fear & Greed are disconnected with high checking balances.

Admittedly, this is an overly simplistic connecting of the dots but there’s still logic in this assessment. If consumers are very nervous, they should hoard cash – check. If you are nervous, you likely will reduce your spending, particularly on discretionary items – check. Impressively though, the last Retail Sales report showed we returned to levels last seen when the crisis started. Consumers have a habit of switching their spending activities and this time is no different. I’ll reiterate, nothing is more predictable than a consumers’ propensity to spend.

You can turn off the economy but somehow consumers will still find a way to spend money. Spending comes in a variety of forms. This time the spending has been on a narrow group of activities and hobbies.

Every crisis is different. This crisis, consumers got help from the Fed and the government in the form of payroll assistance. Because of this massive liquidity injection, a massive amount of pent up spending got channeled from a wide number of companies into a narrow group of companies, primarily through the e-commerce platforms. With time on their hands, consumers also turned to online trading as the new “side hustle”. I still remember the E-Trade and TD Ameritrade trading commercials from the late 1990s, it feels a bit like that period now in many ways. To be sure, there’s clear rampant speculation from inexperienced traders but overall, I see as much caution as I do euphoria. While there’s clear uncertainty in our lives, that anxiety is less present in the sentiment of traders/investors because they are primarily trend traders and currently, the trend has been up since March 23. The confidence in markets via the below CNN Fear & Greed Index and other metrics I follow is a massive disconnect from the historically high checking account image above that implies people are quite cautious.

With regard to fear and greed, only the extremes really matter and for now, we are not in the “excess greed” category yet. What am I getting at? Well, there’s a massive dis-connect between the high levels of cash in bank accounts that earns nothing (fear) and the high sentiment from investors where the up-trending stock market is concerned. We are not at “max greed” just yet.

Massive pent up demand for broad spending.

Consumers have shifted their spending patterns and seem to be crowding into just a handful of spending categories. Once this passes, our collective spending will broaden out and more consumer stocks will benefit. There’s been a ton of commentary regarding the narrow market but honestly, the market should be narrow given there’s far fewer companies well positioned for the environment we are in. Currently corporate earnings are a tale of two worlds: those that have strong brands, online buying capabilities and strong balance sheets and companies with deteriorating balance sheets, marginal brands that have sub-par or zero online capabilities. Now is a time to be narrow in your investment focus. Thus far this year, these are some of the spending categories that have survived and thrived: housing, home improvements, corporate consulting, vital technology, athleisure apparel, e-commerce, warehouse shopping, and mobile payments to name a few.

The spending categories that have largely lagged and appear somewhat challenged today could likely be next year’s top performers. These include travel, ride sharing, crowd gatherings, typical apparel, restaurants, theme parks, airlines and cruise ships, and elective medical procedures to name a few. At some point our economy will hit a trough and we will slowly begin to heal as a nation. Then a wave of pent-up spending will be unleashed and the high cash balances across the banking sector will start to fall again. When the uncertainty is lifted, the worst performers and structurally challenged businesses likely hold better upside potential than even the current winners have shown this year.

Be on the look-out for some signs of calm and recovery. Once you see the evidence, there will be a massive wall of money unleashed back into the equity markets and across other assets. As the economy begins to heal, interest rates will gravitate higher and scared bond money will seek new opportunities in dividend stocks as well as value and cyclicals. When a massive amount of money moves from being concentrated to wanting more diversity, the effect on the favored stocks can often be exhilarating.


The following are some key takeaway points for investors.

  • There’s a historic amount of money parked in accounts earning nothing – this is not sustainable.
  • While we are fearful and hoarding cash, those who are spending time investing are not fearful at all. However, they are not at a euphoric extreme that I can tell.
  • When uncertainty is removed, the historic levels of cash will begin to fall, and more consumption will ensue. This means there’s lots of new potential stock winners during the second phase of this crisis: the recovery stocks.


This information was produced by and the opinions expressed are those of the author as of the date of writing and are subject to change. Any research is based on the author’s proprietary research and analysis of global markets and investing. The information and/or analysis presented have been compiled or arrived at from sources believed to be reliable, however the author does not make any representation as their accuracy or completeness and does not accept liability for any loss arising from the use hereof. Some internally generated information may be considered theoretical in nature and is subject to inherent limitations associated therein. There are no material changes to the conditions, objectives or investment strategies of the model portfolios for the period portrayed. Any sectors or allocations referenced may or may not be represented in portfolios managed by the author, and do not represent all of the securities purchased, sold or recommended for client accounts. The reader should not assume that any investments in sectors and markets identified or described were or will be profitable. Investing entails risks, including possible loss of principal. The use of tools cannot guarantee performance. The charts depicted within this presentation are for illustrative purposes only and are not indicative of future performance. Past performance is no guarantee of future results.