Bank of America
Investors are increasingly taking advantage of risk-free interest rates above 5%.Money market funds are on track to take in a record $1.5 trillion this year, according to Bank of America.“Nothing screams ‘bear market in conviction’ more than money market funds seeing $1 trillion of inflows,” BofA said.
Our Chart of the Day is from Bank of America, which shows that money market funds are poised to see record inflows this year.
According to the bank, money market funds are on track to attract $1.5 trillion in new assets this year as investors take advantage of high interest rates.
“Nothing screams ‘bear market in conviction’ more than money market funds seeing $1 trillion of inflows,” Bank of America’s Michael Hartnett said in a Friday note.
Most money market funds currently offer investors a yield of just over 5%, which is a far-cry from the near-zero interest rates offered before the Federal Reserve started hiking rates in March 2022. Those high interest rates make buying stocks that much less appealing, given their inherent risk and uncertainty.
The S&P 500 has historically delivered an average annual return of about 7%, so a guaranteed risk-free return of 5% is no doubt enticing for investors.
There is currently about $5.6 trillion sitting in money market funds, and if BofA’s estimate pans out it could soon hit $6 trillion.
But that war chest of cash could ultimately help push the stock market higher if investors start to shift that money to buy stocks.
“A mountain of money can provide fuel for year-end rally,” Bank of America’s Stephen Suttmeier said in a separate note earlier this week.
“Cash at 5% lags the year-to-date S&P 500 return of 16.9%. Since the S&P 500 can continue [to] thrive after solid returns for [the] first half and a strong year-to-date rally through August, it would not surprise us to see investors put cash to work and fuel a rally into year-end,” Suttmeier said.