Investors are flocking into the comparative safety of money market funds in the maximum level since the fiscal crisis-era collapse of Lehman Brothers at 2008.
The sector has pulled in $322 billion over the previous six months, the fastest pace since the second half 2008, bringing funds to nearly $3.5 trillion, based on data from FactSet and Bank of America Merrill Lynch.
On the bright side: This was a period which preceded the purchasing age of a life for stock market participants. In March 2009, Wall Street kicked off a bull market, still intact, that would break records for longevity.
“You might be contrarian and state [the money market flow is] positive, because if the industry actually steadies itself and there is a detente [in the trade war], that money’s going to go back into the equity market,” said Quincy Krosby, chief market strategist at Prudential Financial. “From a contrarian standpoint, it would be helpful.”
Total money market assets assets are currently at their highest level since September 2009.
The capital have observed inflows each month this year except for April, with assets rising nine of the past 10 months as the stock exchange has wrestled with myriad problems, primarily between the trade dispute with China and lingering worries that the U.S. is heading toward a possible downturn.
Facing a continuous drumbeat of headline risk, investors have led into the mattresses in order protect cash until the storms clear.
“There’s been enough headlines, whether you’re talking politics, trade concerns or whether or not we’re heading into recession for the money to go into those markets,” Krosby stated.
Stocks, in actuality, have been on a roller coaster for the last year, tumbling at indications of a fracture in the U.S.-China talks then rallying on any ray of hope. The Dow Jones Industrial Average surged more than 400 points Friday on some favorable sentiments from the White House which this week’s trade talks could yield fruit.
Then and now
If the fantastic news can endure, and the market holds off a recession, which means there will be plenty of dry powder on the sidelines to fuel another stride on Wall Street, on account of the large move to currency markets.
The two eras, however, bear only passing resemblance.
While there was noticeable churning from the marketplace since the tariff exchange started, 2009 saw history-making periods of volatility, with the Cboe Volatility Indicator hitting a high which has not yet been broken. The U.S. and international economy was in shambles, and investors were shipped to cash markets as a means to safeguard capital when nothing seemed secure.
Investors who remained in the marketplace are coming off a period of enormous profits and a marketplace that could stall if the delicate levers of growth don’t move the ideal way.
“You’re looking at geopolitical events that are totally binary,” stated Mitch Goldberg, head of ClientFirst Strategy. “I think most people in this bull market may feel like they’ve made enough money and if they miss a little upside, they’re with that, and that’s what this reflects.”
Money market funds have profited even as yields have dropped amid Federal Reserve rate cuts and expansion anxieties. The funds are currently yielding about 2%, down from 2. 47percent at the start of 2019, according to Moody’s.
Goldberg said the influx into the capital may not necessarily reflect investors waiting to put cash to work but instead a tired market where cash may sit for some time as the uncertainty plays out.
“This isn’t mom-and-pop reconfiguring their investment portfolios today,” he said of Friday’s rally. “This is electronics. This tells you why you shouldn’t get overly bearish, you shouldn’t get overly bullish. You have to moderate yourself and take into consideration your own economics, your risk tolerance, time horizon and financial goals. This, too, shall pass.”