https://www.wsj.com/finance/investi...et-bulls-salivating-0a1b4a8c?mod=hp_lead_pos8 As usual, the graphics didn't paste. By Eric Wallerstein Updated Jan. 18, 2024 9:56 am ET 437 Wall Street wants your money off the sidelines. Rising interest rates drew trillions of dollars into money-market funds and other cash-like investments in the past two years, with more than $8.8 trillion parked in money funds and CDs as of the third quarter of 2023. Investors are optimistic that with rates poised to fall, people will redirect that money and fuel markets’ next leg higher. Vivek Trivedi, 37 years old, a pharmacist in Indianapolis, has around $80,000, or a bit more than 10% of his overall assets, in money-market funds and inflation-adjusted U.S. savings bonds (I bonds). He plans to eventually use that cash to buy a rental property but would consider investing it in blue-chip stocks in the meantime should interest rates fall and render yields less attractive. WHAT’S NEWS “Every month, I’m looking at inflation,” he said. “If I’m not earning at least 1.5% more than inflation, I have to think about different strategies.” What Trivedi and others decide is key to what happens next in markets. Expectations that the Federal Reserve will cut interest rates later this year spurred big rallies at the end of 2023, driving major indexes near records. That heat is beginning to dissipate. Some investors say markets have little room for further gains and are already priced for a perfect scenario, in which inflation moderates without significant job losses. Wall Street is pinning its hopes on cash moving from money-market funds to provide the next big boost. 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. Bond yields have declined from their peaks, but rates offered on Wall Street remain high relative to recent history, pulling cash toward money-market funds. Stocks also still look expensive, meaning bargain hunters might find rates on CDs more alluring than playing the market—for now. “The assets in money-market funds are staggering,” said Randy Gwirtzman, a portfolio manager at Baron Capital. “All that dry powder is on the sidelines and waiting to invest.” ‘It’s hard to pass up CDs over 5.5%, particularly for seven months,’ says Elizabeth Cathcart. Elizabeth Cathcart, 26, works in corporate finance at an investment firm in Denver. She says the math of homeownership has risen so much that without an aggressive investment strategy, it will be unattainable. “It’s hard to pass up CDs over 5.5%, particularly for seven months. That’s not a bad deal,” said Cathcart. “But 12 months or longer, I don’t want to lock away cash for that long. I’m young, I want to take more risk.” Expectations for cash to pour into the market once rates fall may prove overly optimistic, however. Money-market funds raked in cash during previous Fed-tightening cycles but didn’t hemorrhage it when the central bank began to ease. Assets retreated from their peaks, but still plateaued at much higher levels. Investors also tend to tap money markets during periods of market stress, not necessarily when yields are higher. Assets in money funds peaked at nearly half of the overall money supply in 2008. There was a similar spike in 2001, the aftermath of the dot-com bubble. Francisco Pena, 30, a data scientist in New York City, said he is using short-term Treasurys, CDs and I bonds as a temporary home for his money. He is saving for a down payment with his husband. “I didn’t want my cash sitting in a bank account, losing real purchasing power—especially with inflation on the rise,” said Pena. If rates fell substantially, he would stick with a high-yield savings account to keep his cash at the ready. Francisco Pena says he is using short-term Treasurys, CDs and I bonds as a temporary home for his money. There is some debate over how much of the assets in cash-like products should be thought of as investments, with potential to enter other parts of the market, versus as bank deposits to be saved or spent later on. Total deposits at U.S. lenders have fallen to $17.4 trillion from a peak of $18.2 trillion since the Fed began tightening policy in early 2022. The path of interest rates will affect how much money is pulled from fixed-income products. In the past, rate cuts have often been large and rapid, aimed at stemming a crisis. Wall Street foresees a smoother glide path this time around, with rates ending up much higher than near zero, where they sat for years. Traders’ base case is for the federal-funds rate to remain above 3% in the coming years. Fed officials expect the benchmark rate to decline to 2.9% by the end of 2026. Mark Wiggins, 27, a management consultant living in Miami Beach, Fla., is currently stashing 17% of his income in a high-interest savings account earning 4.4%. Another 13% goes into his 401(k). When rates were lower, he would invest a percentage of his paycheck directly into stocks and crypto. He is planning to invest a significant chunk of his savings. “If rates fall below 3.5%, I would probably cut the amount I’m putting into my savings and instead direct deposit to my investment brokerage or crypto,” he said.
Assume that all 8.8 trillion are placed to enter the U.S. stock market, at the open of next day's trading. Further assume, that all are buy orders -- even though all could be shorts. Further assume that no new IPOs, nor company stock is offered at that time. After the commotion of buying, how much money will then be on the sidelines? Answer: the same 8.8 trillion (less broker fees.) Reason is that for every 8.8 trillion buys, there must be 8.8 trillion sells. The money on sideline is an old bull myth, which only looks at one side of the equation. Also ignored, is the 8.8 trillion is now being used, via loans, etc. So also ignored, is what would happen if those loans were stopped, even temporarily.
I keep hearing over and over about money on the sidelines creating market euphoria as if this money does pour in it will create an ongoing bull market, but then you say otherwise! I have heard this as nothing more than false information but yet to this day it's never been proven if this money on the sides actually creates the upside that most talking heads talk about.
Back to crypto haaaaaa.... Here we go....cant wait to see the next comedy drama movie written about wallstreet... “If rates fall below 3.5%, I would probably cut the amount I’m putting into my savings and instead direct deposit to my investment brokerage or crypto,” he said.
%% Are you saying that's when some cash came off the sidelines ??LOL AS if the market or money market is some kind of football game LOL?? Sounds like E Cathcart is making the point, CD or money markets are fine; but we want more risk + reward. So in a stock/ETFs market context, sure could say CD or money markets are like cash on sidelines; but I don't see much in common with markets + football myself . Pigskin fans may differ. WSJ color charts can help, usually much more than the ''news'' But E Cathcart caught a real good time tested principle, we want more risk reward than money market or CDs.