The stock market is buckling under the weight of a simple equation: cash earns more than equities.
Currently, six-month Treasury bills yield about 5.5% — the highest since 2001 — compared to the S&P 500's earnings yield of roughly 4.7%. That's the biggest advantage that cash has enjoyed relative to equities since 2000, according to data compiled by Bloomberg.
While not quite an apples-to-apples comparison, it speaks to one of this year's most urgent questions for money managers: do you hold your nose and dive into still-expensive equities, or hide out in cash and risk missing out on any rebound?
With the Federal Reserve's resolve of keeping interest rates elevated for longer firmly cemented in the market psyche, investors are increasingly opting for the latter.
They're flocking to short-dated Treasury bills, which offer virtually zero credit risk.
Assets in money market funds hit an all-time high of $5.6 trillion this month, while about $17 billion has flooded into cash-like exchange-traded funds over the past three months as investors search for lofty yields, according to data compiled by Todd Sohn, ETF and technical strategist at Strategas Securities.
The vanishing appeal of stocks for income-hungry investors was on display yet again on Tuesday as bond yields continued to rise after briefly falling from decade-highs.
The 10-year yield touched 4.56% at one point, its highest level since 2007. Meanwhile, the S&P 500 and the Nasdaq 100 fell more than 1% each.
"Stocks are more expensive than cash," Ed Clissold, chief U.S. strategist at Ned Davis Research, said on Bloomberg Television's The Close. "You really have to try to find companies that will grow quickly to justify owning a risky asset like stocks instead of just sitting in cash and collecting a risk-free 5.5%."
