“$6 trillion in money-market funds won’t lift stocks, says Ned Davis strategist”
By MarketWatch
Published: Jan. 11, 2024 at 1:38 p.m. ET
Chief global macro strategist at Ned Davis Research, Joseph Kalish, has poured cold water on the idea that the roughly $6 trillion in money-market funds currently sitting on the sidelines will provide a significant boost to the stock market.
In a client note on Thursday, Kalish described the argument that “cash on the sidelines” would be bullish for stocks as “propaganda,” and pointed to 40 years of historical data for the money-market industry to make his case.
The team at Ned Davis Research found three significant declines in money-market fund data in the past four decades, with the largest drop of 35.4%, or $1.4 trillion, occurring in the aftermath of the global financial crisis.
Other periods of significant declines for money-market assets were seen following the bursting of the technology stock bubble in the early 2000s and during the pandemic in 2020. In each case, these declines coincided with Federal Reserve moves to ease monetary policy and support the economy, prompting investors to move money out of cash into higher-yielding assets.
Kalish noted that money-market funds had raked in roughly $1.4 trillion over the past year, but pointed out that these past declines in money-market assets occurred after big bear-market moves in equities, which enticed investors back into stocks and out of cash. He highlighted that neither of these conditions are currently present, especially with money-market funds offering 5% or more and equities sitting at or near record highs.
With the S&P 500 index briefly trading intraday above its prior closing record on Thursday and the Dow Jones Industrial Average also rising to a series of record closes, Kalish identified a resilient economy and a sharp retreat in the 10-year Treasury yield in the final months of 2023 as strong catalysts for stock rallies.
While the strategist highlighted reasons to be bullish on equities and credit, he expressed skepticism about the impact of the pile of cash on the sidelines, describing it as “a weak one.”