The stock market is set to see a significant boost next year, thanks to a record $6 trillion and a growing cash pile in money market funds, according to Fundstrat’s technical strategist Mark Newton.
What Happened: Newton is of the opinion that funds might begin to deploy cash in the new year once rebalancing takes place, as reported by Business Insider.
If the Federal Reserve starts cutting interest rates next year, this would hold more true as the risk-free interest rate on money market funds will also fall. This would make holding cash in money market funds less appealing as compared to putting it in the stock market.
This year has seen a significant increase in money market fund assets, driven by appealing 5% interest rates. Total cash on the sidelines recently touched a record $5.88 trillion, marking a 24% increase from last year’s $4.73 trillion, the report noted.
Why It Matters: Newton believes that minor pullbacks in the coming weeks or months should be seen as buying opportunities, given the global liquidity backdrop and the large amount of sideline cash. Once funds start investing cash in the next year, it will further drive the market rally, Newton says.
The Federal Reserve is widely expected to cut interest rates at least five times next year.
Despite record highs for the Dow Jones Industrial Average and Nasdaq 100, Newton believes that the growing cash pile shows the stock market optimism isn’t excessive.
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