Equities: Cash, valuations and IPO supply – BNY

BNY’s Bob Savage analyzes U.S. equities using iFlow data, highlighting declining institutional cash balances, elevated valuations and record IPO issuance such as SpaceX. He notes that cash levels are near their 10‑year average, IPOs have mixed links to corrections, and policy expectations rather than inflation itself are driving equity risk pricing into Q3 and H2.

Cash, valuations and IPO dynamics

"iFlow institutional cash holdings began tracking the S&P 500 more closely from Covid onward. The magnitude of the peak-to-trough move matters less than the turning points themselves as a timing signal for equity volatility. The current decline in cash holdings looks likely to continue, consistent with previous episodes."

"The current pullback in cash holdings is modest compared to Covid or the Russia invasion of Ukraine, but the peaks have been good indicators for reversals in equity trends, with one exception: Liberation Day. Cash buying-the-dip remains the dominant narrative. Cash holdings are currently sitting near their 10-year average."

"The current divergence of the index from holdings suggests that investors are wary of the high valuations driving increasing stock issuance. Higher CAPE has generally been linked to higher cash holdings – some of it defensive positioning ahead of an anticipated mean reversion. The IPOs in the weeks ahead are part of the same story."

"Mega-sized IPOs have not historically called a market top. In the last 50 years, 20% of big IPOs have preceded a market correction. The timing and cash coincide with, but don’t cause, market reversals."