The Wall Street Journal asks, "Where Did Americans Put Their Money This Year? Everywhere." The article includes a number of charts sourcing Crane Data information, and explains, "This was the year investors could hardly go wrong. After years of seemingly nowhere to go but the stock market, investors faced a bonanza of choices in 2023. The Federal Reserve's aggressive interest-rate hiking campaign paved the way for the most tempting yields on ultrasafe assets in decades. Investors swiftly took advantage, sending torrents of cash to corners of the market that long seemed forgotten."
They explain, "In the final moments of the year, they are throwing money at virtually everything.... Assets in money-market funds surged to a record of more than $6 trillion, according to Crane Data. It is a pivot not seen in generations, one with wide-ranging implications for how much risk Americans are taking in markets. What this buildup means for markets is debatable. Some say the pile of cash gives investors ample reserves to put into stocks, which could buoy markets in the new year. Others say it gives Americans extra firepower to spend on everything from concert tickets to flights in coming months. Much of this hinges on the Federal Reserve’s path in 2024. If bond yields stay high, investors could keep hoarding cash. 'That's another reason I'm more bullish on the economy,' said `Laurie Brignac, a chief investment officer at Invesco. 'When this money gets put to work, it's going to have a big impact."
The article continues, "For now, investors are rushing to lock in higher yields.... Purchases of investments such as certificates of deposit and Treasurys have jumped this year to the highest levels since at least 2015, according to Tradeweb data. At Fidelity's retail brokerage, trades in bonds and CDs jumped around 10-fold since the end of 2021, far surpassing levels recorded over the past two decades, even in times of rising interest rates."
The Journal adds, "Investors parking cash in money-market funds reaped around $300 billion in interest income -- more than in the prior decade combined, according to estimates from Crane Data. That gave many Americans' wallets a boost in 2023. In 2024, many investors expect the Federal Reserve to shift to trimming rates after around two years of aggressive hikes. A drop in yields could dent the passive income generated by these safe investments and ripple through the economy in new ways."
In related news, CNBC writes "Money market funds were hot in 2023. Here's what to expect in 2024," which comments, "Next year should be another good one for money market funds, even amid anticipated rate cuts by the Federal Reserve, experts predict. The assets became a favorite place for Americans to stash cash this year, thanks to their historic yields. The annualized seven-day yield on the Crane 100 list of the 100 largest taxable money funds is currently 5.19%. It was 4.05% on Dec. 31, 2022, and 0.17% on Dec. 31, 2021, according to Crane Data, a firm that tracks money markets. Inflows ramped up as well. An estimated $950 billion has gone into money market funds so far this year, bringing the total net assets to $5.87 trillion as of Dec. 20, according to the Investment Company Institute."
They state, "The Federal Reserve has indicated three rate cuts for 2024, which means the yields in short-term assets like money market funds and online savings accounts will follow suit. While it's unclear when those cuts may start, fed funds futures pricing data suggests about a 76% probability that rates will decrease by 25 basis points in March, according to the CME FedWatch Tool."
Shelly Antoniewicz, deputy chief economist at the Investment Company Institute, comments, "Even if the Fed is going to ease, it is going to be very measured, very controlled.... Short-term yields may be a little lower, but will remain very attractive."
The CNBC update adds, "Peter Crane, founder of Crane Data, expects yields to go down at most to 4% by the end of 2024. 'With lower inflation rates, that is not exactly a bad deal,' he said. He anticipates retail money will continue to flow into the funds, even though some may drift back to the stock and bond markets. That's because money market funds are competing with bank savings accounts for cash, not necessarily equities and fixed income assets, he said."
Crane says, "Even if the Fed cuts a number of times, the spread between bank deposit yields and money market funds yield will still be huge <b:>`_.... The table will still be tilted in favor of money funds over bank deposits." Finally, CBNC tells us, "The funds that Crane tracks have seen inflows of $1.1 trillion this year, and he said it's not out of the realm of possibility that the funds could see another $1 trillion of inflows in 2024. Institutional money will also come in since there is generally a month or two lag between the rate cut and money market fund yields coming down, Crane said."
