A record amount of funds flowed into money market accounts as the year ended. Those funds could be the fuel for a major stock rally.
The Investment Company Institute said money market accounts held a record $4.814 trillion in the week ended Jan. 4.
But strategists say investors may hold back from putting more money into stocks, since sentiment is sour and money markets are now generating more return than they have been in years.
Investor cash holdings are near record highs, and that could be good news for stocks since there is a wall of money ready to come right back into the market.
But the question is this: Will those investors return any time soon, especially with sentiment still so sour and stocks at risk of a major selloff?
Total net assets in money market funds rose to $4.814 trillion in the week ended Jan. 4, according to the Investment Company Institute. That eclipses the prior peak of $4.79 trillion during May 2020, back in the earlier months of Covid-19.
These sums include money market fund assets held by retail and institutional investors.
The level of assets in these money market funds has come off the highs since the start of the year, but Wall Street has already noticed the cash pile.
"It's a mountain of money!" wrote Bank of America technical research strategist Stephen Suttmeier. "While this seems contrarian bullish, higher interest rates have made holding cash more attractive."
Staying in a holding pattern while earning income
Investors, worried about earnings and interest rates, may be willing to wait before they put more money into stocks. At the same time, money market funds are actually generating a few percentage points of income for the first time in years.
