Companies Are Hoarding Cash. Here’s Why

A Question of Confidence

The U.S. labor market is strong, inflation is cooling, strong consumer spending has spurred economic growth, and the stock market is at record highs. So why are companies hoarding cash?

Companies increased their cash savings by 13% in the first half of 2023, to the tune of $2.4 trillion, and scaled back share buybacks, according to Moody’s Investors Service. Typically, this kind of behavior is a sign of uncertainty to come.

Insurance for Uncertainty

There’s a big opportunity cost for businesses to hold cash. They could instead choose to pay down debt, or invest that money in their business or something that can generate a return rather than let it sit idle.

But cash does have one notable advantage: It’s a liquidity insurance. In times of uncertainty, cash reigns supreme, providing companies with the flexibility to address unexpected expenses, or issues caused by sudden changes in economic conditions.

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