According to BCA Research analysts, the "cash on the sidelines" available to fuel further gains in the US equity market has dwindled to a record low.
The firm said in a note that this reduction applies to both household and investment firm funds, suggesting limited remaining firepower to sustain the ongoing rally in the S&P 500.
BCA Research notes that even when considering the alternative investment universe, the ratio of investment firms' aggregate investable funds to the market value of all assets remains significantly below its 2000 level. They explain that, essentially, money moves from buyer to seller through securities transactions.
Furthermore, economic indicators are beginning to show signs of strain, according to BCA.
"There are cracks emerging in the US economy," with US low-income households are struggling financially, they state. The firm sees this demographic curtailing its spending soon, leading to a contraction in corporate earnings.
Given these factors, BCA Research analysts predict that US stocks will peak shortly and that a bear market is likely to follow.
They recommend that global asset allocators shift their focus towards government bonds rather than stocks and maintain a significant allocation to US dollar cash. The analysts also suggest continuing to underweight emerging market (EM) stocks and credit within global portfolios.
Overall, BCA Research claims that the combination of limited investable funds and emerging economic challenges indicates an imminent peak in the US stock market, necessitating a strategic reallocation of assets towards safer investments like government bonds and cash.