There is currently a record setting $5.7 Trillion in money market assets from both investors and institutions combined. This, combined with a very bullish month, the Nasdaq being up 11% and the S&P 500 up 8.7% respectively, is leaving analysts confused as to what the current trajectory of the market is.
On one hand, there are analysts who view the current growth as unsustainable, and view the market as rapidly approaching a contraction. Part of the reason that there is so much money in money market funds is because the current yields are currently above 5% for many of them. These analysists think these rates are due to tick down and subsequently cause people to move their money to other investments. On the other hand, there are analysts who the large supply of money in the market as a bullish signal.
Firms are also trying to stay competitive in the current money market as it is easy for people to decide to move their money elsewhere due to the high rates currently being paid. For example, the brokerage webull just began offering 5% to all funds that are being held within a brokerage account. Webull claims that there was a large inflow of cash into their brokerage over the last 6 months, and much of it began to be invested this month as the stock market turned around.
Article: https://www.wsj.com/finance/stocks/investors-are-hungry-for-riskand-holding-record-cash-sums-6fe43275? imod=hp_lead_pos1
It is crazy to think how we can just move money around left and right to get higher return and/or lower risk. In class today we talked about refinancing homes during the crisis time of the recession and this reminds me of that a bit. The economy has a way of swaying due to individuals, governments, and more groups that can play an impact. It will be interesting to see how the next month goes and how the NASDAQ as well as the S&P 500 will be when talking about the money market assets are since you said that the trajectory is uncertain.
ReplyDeleteThe future of the US economy is indeed puzzling. These analysts are dealt with the difficult task of looking over all of these variables mentioned and many more to hopefully predict the future of the economy. This large money supply certainly is one of the main variables being looked at as you mentioned and I can say I agree with the analysts that predict the rates to tick and slow down.
ReplyDeleteGreat post! One thing I would worry about when investing would be the increase in the federal funds rate, causing many companies to either sell more shares (diluting your stock) or getting loans at these high rates to continue to expand. I would actually expect a decrease in stock prices coming up due to the difficulty for companies to expand or stay afloat during these economic hard times.
ReplyDeleteSome think this "good time" might not last, considering that the interest rates on money market funds could go down. Others see all this money in market funds as a sign that things will keep getting better. It makes sense that some companies might also be trying to keep up by offering good deals.
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