Declining markets reflect declines in investors' outlook for firm prospects, increasing their expectation that firms will waste excess cash. In contrast, excess cash is useful in mitigating financial distress associated with poor earnings. We find an inverted U-shaped relation between stock return and excess cash in declining markets, suggesting the positive effect of excess cash dominates at low levels of cash, while the negative effect dominates at high levels. We also document an inverted U-shaped relation for firms with weak shareholder power and firms with high information asymmetry in advancing markets. These suggest investors' desire for cash reserves is limited.