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Investors can’t stop hoarding cash, with assets in money market funds swelling to a record $5.3 trillion.
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The increase in liquidity comes amid a combination of higher interest rates and lower investor sentiment towards the stock market.
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But this massive pile of cash may be the fuel to drive the next bull market.
Investors are hoarding cash at record levels and there is no sign of a trend reversal amid rising interest rates and dampening investor sentiment towards the stock market.
Money market fund assets have swelled to a record $5.3 trillion, with inflows rising $588 billion over the past 10 weeks, according to a recent note from American bank.
The surge in cash held by investors came amid a flight to safety sparked by the regional banking crisis, in which three banks with total assets of nearly $550 billion collapsed over two months.
The recent influx of money into money market funds has surpassed the $500 billion in money inflows seen after the collapse of Lehman Brothers in 2008, and was about half of the $1.2 trillion that flooded money market funds during the start of the COVID-19 pandemic.
Part of the reason why investors stockpile cash is Benefit from a high risk-free rate of return of just over 4%. Another reason is that investors Outright bearish on stocks.
in The latest AAII Investor Sentiment Survey, which asks investors where they think the stock market will be in six months, bearish responses rose to 45% over the past week, a historically high reading for the more than 30-year-old poll. The historical average for bearish responses is 31%.
Meanwhile, only 24% of respondents were optimistic about stocks, which indicates that most investors are struggling to find a good reason to invest their money in stocks amid the growing uncertainty associated with the ongoing banking crisis.
And Fundstrat’sTom Lee agrees. That is, if the banking crisis continues to spiral out of control. in Friday noteLee told investors that “this is a difficult time to argue about adding risk” in light of the recent collapse of First Republican Bank and High volatility seen in PacWest Bancorp and Western Alliance Bancorp.
“This raises a lot of tail risk issues, including credit tightening, commercial real estate and broad economic impacts,” Li said. However, Lee still sees a balanced risk/reward setup for the stock market, with the banking sector showing signs of stabilization and better-than-expected earnings results.
And if ongoing developments in the banking sector, the economy, and the stock market turn out better than expected, there is $5.3 trillion in cash that could act as fuel to drive the next bull market in equities. This is because, according to Lee, a lot of the cash that has been accumulating over the past two years has been pulled out of the stock market.
“S&P 500 and Nasdaq stock liquidations have outpaced retail purchases since 2019,” Lee told Insider on Friday, referring to Goldman Sachs data.
“I think equities are flat versus (a) a year ago, sentiment is much worse and there is more liquidity on the margins. So there is definitely an inflows story that could unfold,” Lee said. for me He set his price target for the end of 2023 at 4,750, About 15% higher than current levels.
If that massive cash pile starts to vanish, investors will have few choices about where to put it, and the stock market is probably the best option.
Read the original article at Business interested