Investment firm Ned Davis Research is moving even further to the sidelines as the sliding stock market shows little sign of slowing down. Tim Hayes, the firm’s chief global investment strategist, said in a note to clients that after waiting to see if there would be a “breakout” or “breakdown” for markets, the global decline in stocks has made it necessary to put more money in cash to ride out the storm. “The breakdown has now taken place, so we are shifting 5% from stocks to cash, getting more in line with the equity allocation recommended by our Global Balanced Account Model. Our fourth equity downgrade of 2022, this move leaves the allocation at 50% stocks (5% underweight), 30% bonds (5% underweight) and 20% cash (10% overweight),” Hayes wrote. The S & P 500 has fallen for nine out of the past 10 weeks and officially tipped into a bear market on Monday, as sky high inflation has led markets to price in a more aggressive Federal Reserve. Foreign markets have also sold off, with a surging dollar and the war in Ukraine rippling through global economies. Hayes said that there is still a path where this pullback ends up as a rough patch in an otherwise strong long-term period for stocks. “The major question going forward is whether the secular bull market is still intact, in which case the historical averages would suggest that equities are getting close to the end of the decline. While cyclical bears have tended to be relatively mild and short during secular bulls, they have usually been relatively long and severe during secular bears,” Hayes wrote. This is the highest cash allocation for Ned Davis since 2009, when it was above 20%. Hayes said that Ned Davis could further increase its cash position if conditions worsen. “While our base case is that inflation will soon be peaking and the secular bull will remain intact, we will continue to reallocate out of equities if the evidence keeps worsening,” he added.
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