Look at the mountain of cash in money markets today, and you’ll soon realize what it will take to get that money back into stocks, if that’s even possible. It’s called return on one’s capital, and historically, stocks paid a dividend to their owners. Today, the hubris at tech companies and the focus on stock options is misplaced. Investors want predictable cash, especially as the pig-in-the-python Baby Boomer generation demands more income from passive investments. Your Survival Guy looks for stock investors to get paid first in the form of dividends. This is absolutely a competition, and stocks will need to pay up before they can attract any of this cash. Bloomberg’s Alex Harris and Nina Trentmann report:
Investors are plowing billions into money-market funds by the day. Corporate treasurers are hoarding record amounts of cash. The market is digesting a glut of Treasury bills without a hiccup.
For an asset class that many market prognosticators all but left for dead to start the year, there’s still plenty of life left in cash.
Investors have added $128 billion to US money-market funds since the start of the year, Investment Company Institute data show. Companies were sitting on a record $4.4 trillion of cash at the end of the third quarter, and after a flood of more than $1 trillion of T-bills since mid-2023, the market has room for more.
It’s a stark contrast to just a couple of months ago, when one of the hottest questions on Wall Street was where investors would redeploy all their cash holdings once the Federal Reserve started cutting interest rates and making stockpiles of money less appealing.
But a lot’s changed since then. Traders have dramatically dialed back policy easing expectations, for one. The more time it takes the central bank to begin lowering its benchmark, the longer cash held in money-market funds should be able to earn 4%, 5% or more, keeping investors from looking further afield.
Add to that corporate executives who seem in little rush to spend money following the pandemic and depositors still worried about the state of the banking system, and all signs point to 2024 being another big year for cash.
“The year of cash wasn’t a flash in the pan,” said Peter Crane, president of Crane Data LLC, which tracks the money-market fund industry. “The overall resensitization to interest rates is still spreading and even a lot of money hasn’t moved or looked at it yet.”
Cash had been a long-ignored option for most of the decade following the financial crisis as the Fed kept borrowing costs near zero. But that changed after a measured, three-year hiking cycle and the pandemic sparked a scramble for havens.
In 2022, the Fed embarked on the most aggressive pace of rate increases in decades, sending rates well above 5%, and everyone from asset managers to mom-and-pop investors took note of the attractiveness of money-market funds, T-bills and other short-term assets versus earning little-to-nothing on bank deposits.
As a result, more than $1 trillion flowed into money funds last year, the most for any year seen in ICI records dating back to 2007. Those inflows helped money funds keep up with the ramp-up in T-bill issuance, and the gap between total money-market assets and total bills outstanding, albeit narrowing, still suggests there’s appetite for short-dated government debt.
Action Line: On the chart below, you can see that stock investors simply aren’t getting paid well for an investment in the S&P 500. When you want to discuss a plan for your cash, I’m here.
