What Will it Take for Investors to Jump in?

11/15/2013 12:01 am EST


Jim Jubak

Founder and Editor, JubakPicks.com

With plenty of money still on the sidelines, MoneyShow's Jim Jubak has an idea of what it might take for investors to finally jump on the bandwagon and buy stocks.

It would be sure nice to have a trend for the end of the year, one way or another. The problem right now is that you can make arguments for this market in all kinds of directions. You can say, “Well, the US stocks are not terribly expensive.” If you assume certain things about earnings going forward, you can say, “Well, you know, we have the Central Bank going to support the stock market if the Fed decides not to begin to taper in December or January.” If, if, if, if. Part of the problem right now is, if you look at, sort of, where people have got their money, so that, using the concept of crowded trades to try to get some sense of where money might move to push things up. There is a reasonable amount of money on the sidelines. Last reading from Bank of America Merrill Lynch was that mutual fund managers had an average of about 4.6% in cash, which, for mutual fund managers who tend to keep very little in cash, is a pretty high cash position. They have money they could put into the market.

On the other hand, if you look at where they might put money, those same portfolios are overweight US stocks, they are overweight Japan, they are really, really overweight the UK, historically, way at the top of the weighting, and they're overweight the Euro. If you look at this and go, “Well, yeah, people are sitting on cash, but where would they put that cash?” There is no real clear answer. That you're looking at people who do have some cash to put to work, but who would have to go over overweight if they put them in US stocks.

I think that's…a damper on the market. There is nothing out there that looks really cheap, given risk. I mean, emerging market stocks, you make an argument are cheap on price, but the risk there is pretty high, so you do not necessarily want to go just on price. Right now, we have a market that does not have a whole lot of conviction and is trying to figure out where it might want to put some money. What we really need right now is the trend of a week or two, and then people will do what they usually do at the end of the year, which is jump on the bandwagon.

This is Jim Jubak for the Money Show.com Video Network.

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