U.S. money market funds have witnessed the highest inflow of all-time reaching a record of $6.75 trillion. While the growth in these funds represents better liquidity, it also indicates that investors may have been sitting on cash signaling “latent buying power.”
What Happened: Since the Fed started raising rates in March 2022, according to the chart shared by Kevin Gordon, the director and senior investment strategist at Charles Schwab, about $2.2 trillion of funds have flowed into these funds. Furthermore, as the Fed still expects to cut rates twice in 2025, capital will still be flowing into money market funds.
The money market fund assets have doubled over the last five years and it represents 13.1% of the S&P 500’s market capitalization, according to the Kobeissi Letter.
Why It Matters: According to Alessandro S., the global market strategist and financial analyst at Macro Mornings, “This influx demonstrates strong demand for safer, liquid assets, it also represents a wall of sidelined cash.”
“During the early 2009 recovery, a reallocation of money market fund assets helped fuel a 60% rebound in the S&P 500 over the next year.”
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