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Scared investors haven’t hoarded this much cash since 9/11

And the latest survey of fund managers from Bank of America revealed an “extremely bearish May.”

Here’s one sign of how deep the dread is running, as inflation soars, the Federal Reserve raises interest rates and the war in Ukraine drags on: Fund managers are holding their highest levels of cash since the aftermath of September 11, 2001.

According to Bank of America, roughly 6.1% of assets under management are being held as cash.

That’s compared to 5.9% in the early days of the coronavirus pandemic, and 5.4% in the depths of the 2008 financial crisis, though it’s still below the 8% cash level seen in 2001.

“This daily grinding down of prices, it’s not surprising you’re seeing cash building up,” David Coombs, head of multi-asset investments at Rathbones, told me.

Bigger cash piles signal two main assumptions from asset managers, Coombs explained.

First, they think clients could keep heading for the exits, and want to make sure they have enough money on hand to pay out to investors. Second, they think the market still has further to fall, and want to be in a position to buy in when they think it’s finally reaching its lows.

Coombs has been drawing down his cash levels to buy select short-dated corporate bonds that he now believes are good value. Unlike many, he sees higher cash levels “as a positive sign.”

His logic: It’s always darkest before the dawn (though that’s my cliché, not his).

“Before markets can recover, you have to get expectations really low, because the recovery will come from a positive surprise,” Coombs said. “Obviously, you can’t have positive surprises unless everyone’s really negative.”

He’s worked in too many bear markets to play the game of trying to call when stocks have bottomed out, he added.

But he thinks the “positive surprise” could ultimately materialize when the Fed backs off interest rate hikes sooner than expected, as price increases do the job of cooling consumer demand and weaker markets raise financing costs for companies.

“I think the Fed is quietly satisfied with what’s going on,” Coombs said.

California’s $6 gas could spread nationwide

The average price for gasoline in California hit $6 a gallon Tuesday for the first time — and analysts at JPMorgan are warning that price could be the national average before the end of the summer.

The startling forecast comes as US gas prices have surged to record highs in the aftermath of Russia’s invasion of Ukraine, casting a shadow over the economy.

“There is a real risk the price could reach $6+ a gallon by August,” Natasha Kaneva, JPMorgan’s head of global oil and commodities research, told CNN Business in an email.

With US gasoline inventories sitting at their lowest seasonal levels since 2019, the bank is concerned it will be difficult to satisfy intense demand during this summer’s driving season.

Prices could surge another 37% by August, JPMorgan wrote in its report, titled “Cruel Summer.”

The national average for regular gas rose another five pennies on Wednesday to a record high of $4.57 a gallon, according to AAA. That leaves pump prices up by 17 cents in the past week and 48 cents in a month.

Really cheap gas is becoming much tougher to find. Georgia, Kansas and Oklahoma, the last three states with an average price below $4 a gallon on Monday, all crossed that threshold on Tuesday.

Walmart’s stock posts its worst day since 1987

Inflation is weighing on everyone — even the world’s biggest stores.

Walmart (WMT) said Tuesday that higher costs and supply chain constraints squeezed its profit during its latest quarter, my CNN Business colleague Nathaniel Meyersohn reports. Walmart also slashed its profit outlook for the year, signaling that it expects inflation to continue to hurt its business.

“While we’ve experienced high levels of inflation in our international markets over the years, US inflation being this high and moving so quickly, both in food and general merchandise, is unusual,” Walmart CEO Doug McMillon told analysts. “We’ll control what we can control, reduce our inventory level and keep prices as low as we can.”

The results drove Walmart’s stock down 11.4% Tuesday, its worst day since 1987.

Why it matters: Walmart, America’s largest retailer and employer, is an economic bellwether. If its expectations for the future are changing, it’s worth paying attention.

In February, Walmart said it expected its profit to increase by about 3% this year. Now, it thinks its profit will decrease by about 1%.

Up next

Lowe’s (LOW), Target (TGT) and TJX (TJX) report results before US markets open. Bath & Body Works follows after the close.

Also today: US housing starts and building permits for April arrive at 8:30 a.m. ET.

Coming tomorrow: Earnings from Kohl’s (KSS) and Ross Stores (ROST).
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