According to data from FactSet and Bank of America Merrill Lynch, over the past six months, more than $322 billion has been invested in money market funds, which is the highest since the second half of 2008, financial crisis of 2008 following the collapse of the Lehman Brothers in 2008. In the second half of 2008, the total assets in the markets amounted to nearly $3.5 trillion.
The good news for this time is that the earlier period was the beginning of a long period of buying at the market which was a chance of a lifetime for market participants. The bull market that started at the Wall Street in March 2009 is still continuing and could become the longest in history in terms of longevity.
“You could be contrarian and say [the money market flow is] positive, because if the market actually steadies itself and there’s a detente [in the trade war], that money’s going to go back into the equity market,” said Quincy Krosby, chief market strategist at Prudential Financial. “From a contrarian standpoint, it would be helpful.”
Total money market assets are now at their highest level since September 2009.
Except for April, the funds have seen inflows every month and there has been growth in every month except one in the past ten months. This primarily was because of the trade dispute with China and the concerns that the US economy could be heading towards a recession.
Investors have headed to the markets as a means of protecting their cash till the challenges cleared as they were spooked by a constant threat of headline risk.
“There’s been enough headlines, whether you’re talking politics, trade concerns or whether or not we’re heading into recession for the money to go into those markets,” Krosby said.
For the past year however, the stock market has seen a roller coaster ride. The markets reacted negatively to news of a break in the trade talks between the US and China and went upbeat at the slightest positive news of an end to the trade war. For example, the positive sentiments coming out of the White House just before the US-China trade talks last Friday saw a 400 point surge in the Dow Jones Industrial Average.
There is likely to be another acceleration at the Wall Street is there is continuation of the positive news on the trade wars and the US and Chinese economy holding off a recession. This is because of the big move to money markets.
There is however little resemblance between the two era – the current one and the one at the beginning of 2009.
There were history-making periods of volatility in the market in 2009 while currently there has been a roller coaster movement of the market ever since the beginning of the trade war between the US and China. In 2009, the Cboe Volatility Index hit a high that has not been surpassed yet. Back then the global economy was destroyed and investors rushed to the money markets to find a means to protect capital when most other modes seemed unsafe.
“You’re looking at geopolitical events that are totally binary,” said Mitch Goldberg, head of ClientFirst Strategy. “I think most people in this bull market may feel like they’ve made enough money and if they miss a little upside, they’re with that, and that’s what this reflects.”
“This isn’t mom-and-pop reconfiguring their investment portfolios today,” he said of Friday’s rally. “This is electronics. This tells you why you shouldn’t get overly bearish, you shouldn’t get overly bullish. You have to moderate yourself and take into consideration your own economics, your risk tolerance, time horizon and financial goals. This, too, shall pass.”
(Adapted from CNBC.com)