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Don’t Count On Investors’ Cash Coming Off The Sidelines To Boost Stock Prices

FYI: On Wall Street, rose-colored glasses come with the territory. The Dow Jones Industrial Average DJIA, +0.02% and the Standard & Poor’s 500 SPX, +0.26% both just hit all-time highs after one of the quietest, most grudging rallies I’ve ever seen.

Yet the latest meme circulating down in the Canyon of Heroes, courtesy of a recent Wall Street Journal story, says the fun is just getting started because a record $3.4 trillion in cash is sitting “on the sidelines” just waiting to be funneled into stocks.

That “sidelines” cash story is one of the great tales stockbrokers and fund managers tell themselves because they think everybody is sitting on wads of money, just waiting for the right “nudge” to go all-in.

But a deep dive into the numbers shows that over the long run, the accumulation of cash is almost entirely an institutional phenomenon; since January 2006, individuals may have added little or no cash at all. So, although institutions have some kindling wood to toss in the fire — if they even want to — for many individuals, there’s no sideline to stand on.

In fact, since the start of 2006 — a period that includes one of the biggest bear markets and the longest bull market ever — individuals have pulled hundreds of billions of dollars out of U.S. stock funds, according to investment researcher Morningstar.
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