It is predicted that investors have a good amount of money and have been holding on to it for a long time. Therefore, the amount of money withheld by the investor when entered into the stock market can have a positive impact.
However, the question lingers, how quickly will these investors start pumping money back into the stock market as the stocks are at risk of a major selloff?
Per Investment Company Institute, as the week ended on January 4, the total net asset surged to $4.814 trillion in the money market. The amount was more than $4.79 trillion before the early months of Covid-19, in May 2020.
The sum of the money market fund assets is a combination of retail and institutional investors.
Wall Street had already noticed the amount of money before the level of assets in these money markets had declined from its previous high.
“It’s a mountain of money!” Stephen Suttmeier, Bank of America technical research strategist, wrote. “While this seems contrarian bullish, higher interest rates have made holding cash more attractive.”
Staying in a holding pattern while earning income
Before investors open their wallets and invest in stocks, they are worried about earnings and interest rates, so they are willing to wait for a while. However, for the first time, the money market is generating a few percentage points of income simultaneously.
Thus, before the right moment of investment comes, they have found a safer way to generate returns. Investors have a lot of money in their brokerage accounts. They can invest in money market mutual funds or money market deposit accounts.
Jack Ablin, Cresset Capital’s stated that a more significant shift in the investment environment might be seen in how people behave toward money markets.
“Cash is no longer trash. It’s paying a reasonable interest and so it makes the hurdle higher over which the risky assets have to jump to generate an additional return,” Ablin stated.
Julian Emanuel, senior managing director at Evercore ISI, conveyed that selling off stocks at the end of the year caused a sudden spike in the money market.
“If you look at the flow data for the middle of December, liquidations were on the order of March 2020,” he continued. “In the short-term, it was a very contrarian buy signal. To me, this was people basically selling the market at the end of the year, and they just parked it in the money market funds. If the selling continues, they’ll park more.”
In search of a relatively safe yield
Emanuel anecdotally stated he sees signs of investors transferring funds to their brokerage accounts from their lower-paying savings accounts. The yield there is roughly 4%.
It will serve your best interest if you understand that the Federal Deposit Insurance Corporation does not insure the money market mutual funds as the money market accounts provided by banks.
Nonetheless, any gains are chipped away by higher consumer prices as the inflation rose in December at 6.5% annually.
Ablin continued that there has been a change in investors’ attitudes regarding money market funds and fixed income coming with the Federal Reserve interest rate hike.
Ablin said the change in investor attitudes about money market funds and fixed income came with Federal Reserve interest rate hikes. The Feds have been increasing their fed funds target range from zero to 0.25% to 4.25% to $.50%. Previously to those rate rises, the money market funds hardly made any interest.
For example, the compounded effective yield of 3.99% of the Fidelity Government Money Market Fund generated a 1.31% return in 2022.
Ablin continued that bonds have become popular with those investors seeking yields.
“We like the fact that the bond market is finally carrying its own weight after years and years,” he stated. “From that perspective, you would expect a rebalance away from equities into bonds. They’ve essentially been fighting equities with one hand tied behind their back for 10 years or more.”
- Published By Team Timeswire