Wall Street is closely watching an $8.8 trillion pile of cash that could quickly fuel a major market rally, according to a new report.
Investors are anticipating a seismic shift in the trillions of dollars that has piled up in money markets, reports the Wall Street Journal.
Capital poured into money market funds over the last year amid the banking crisis and the Fed’s interest rate hikes, which significantly boosted the yield for investors in short-term Treasuries.
Now, the Fed has publicly stated that rates have likely peaked, and Wall Street is ready for that $8.8 trillion to begin to shift into stocks and bonds.
“Investors are optimistic that with rates poised to fall, people will redirect that money and fuel markets’ next leg higher…
Rates above 5% were flashy after years of safe investments offering little interest. Their fall could drive investors to U.S. stocks, which have historically provided the highest returns in the long run.”
Randy Gwirtzman, who manages portfolios at Baron Capital, tells the Journal he’s ready and waiting.
“The assets in money-market funds are staggering. All that dry powder is on the sidelines and waiting to invest.”
For the moment, investors in money market funds may be curious about taking on more risk, but JPMorgan says it’s clear they have yet to do so.
According to Reuters, the bank’s fixed income strategists say that so far this year, the amount of money entering money market funds has risen by $75 billion, when they typically witness outflows in the first quarter of the year.
The bank says the timing on the potential shift of capital remains in question.
“Some expect outflows this year, especially if the Federal Reserve delivers the rate cuts it has penciled in for 2024…
However, in prior easing cycles, money market funds continued to see inflows even when the Fed began to cut rates, according to JPMorgan’s analysis of three such cycles since 1995.”
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