WSJ on Investors' Cash Hoard
The Wall Street Journal writes "Ready to Boost Stocks: Investors' Multitrillion Cash Hoard." The article tells us, "Nervous investors have socked $3.4 trillion away in cash. But stocks are rising and their nerves are calming, leading bulls to view the huge cash pile as a sign that markets have room to go higher. Assets in money-market funds have grown by $1 trillion over the last three years to their highest level in around a decade, according to Lipper data. A variety of factors are fueling the flows, from higher money-market rates to concerns over the health of the 10-year economic expansion and an aging bull market." It explains, "Rising yields in money markets have been another key factor. Money-market funds through October offered an average annual return of around 1.6% this year, up from 0.02% in 2011, according to Crane Data. Sweep accounts at brokerages, the main reservoir where these firms hold clients' cash, paid about 0.2% on average through September. When interest rates fell in the years after the financial crisis, bank deposits gained market share from money-market funds because the gap between the yields on both had narrowed so much, said Peter Crane, president and publisher of Crane Data. Money-market rates rose in response to the Fed's nine interest rate increases since 2015 and have declined in recent months to reflect the central bank's rate reductions this year. Higher rates, together with a comparatively high degree of liquidity, has increased money markets' allure for investors looking to park their cash for a comparatively short period." The piece adds, "The difference between combined flows into cash and bond funds relative to stocks over the past year is the greatest since 2012, after adjusting for assets under management, according to Goldman Sachs."
