The Wall Street Journal writes, "Sorry Stock Bulls, the 'Wall of Cash' Isn't All Headed Your Way" in its "Heard on the Street" column. They explain, "Trillions of dollars are seemingly available to move out of cash funds and be put to work in the stock market. That possibility has had stock-market bulls salivating, but they are probably in for disappointment. Despite the expectation that the Federal Reserve's next move is to cut rates, money-market-fund assets have continued to grow at a fast pace. They are now around $6.5 trillion, according to industry tracker Crane Data. While the S&P 500 is up 8% year to date, total money funds added more than $150 billion in assets through the first two months of 2024, or about $50 billion more than they did in the same period last year, according to Crane." (Note: We look forward to seeing you next week, March 25-26, at our upcoming Bond Fund Symposium in Philadelphia!)
The piece continues, "This year's rally ... has plenty of fans, but also many doubters. The fact that money has also continued to pour into their opposite, the ready cash, certainly suggests that not everyone is comfortable hopping onto the bandwagon. Yet glass-half-full types could argue that it strengthens the argument for why stocks and other risky assets have more room to run. They are probably both wrong. What seems like an obvious relationship -- investors choosing safety and stability over risk and reward -- isn't actually so straightforward."
They quote our Peter Crane, president of Crane Data, "The 'wall of cash' idea has been trotted out since we were at a trillion dollars in money funds back in the late '90s.... The fact is that cash mostly just competes with cash."
The article also says, "What is happening with money-market funds is more likely a reflection of choices about where to keep cash -- in a money fund, an account at a big bank, at a small bank, in the mattress -- rather than purely a debate about whether to invest it or not. Choosing a location for cash often has two key components: Where is it the safest, and where can it earn the highest yield? You might also call it 'fear' versus 'greed.'"
It tells us, "The banking crisis last year likely played a role in boosting allocations to money funds out of fear. Of the nearly $1.5 trillion of growth in money-fund assets since February 2022, just before 'liftoff' for interest rates, about $1.2 trillion of that has come since the end of February 2023, the eve of the collapse of Silicon Valley Bank, according to Crane. This also means that a lot of that cash isn't necessarily ticketed for possible investing. It is more likely things like companies' and households' extra liquidity that today they would just rather keep with a money-market fund than at a bank."
The Journal's Telis Demos writes, "Even if fear recedes, greed can work, too. For example, the average seven-day annualized yield on money funds is currently around 5%, versus less than 0.5% for accounts that sweep cash from brokerage accounts into banks, according to Crane's tracking."
He adds, "Some might expect that, if the Fed cuts interest rates this year, as widely expected, that will chase more cash out of money funds. But, contrary to necessarily losing their appeal, their ability to offer some duration -- the ability to lock in current rates even for a month -- can be a feature as a Fed pivot approaches. For a big investor sensitive to every tick of yield, that can take risk of a surprise cut in the short term off the table."
Finally, the brief states, "Bonds and other fixed-income securities can offer more duration or yield than money funds. Notably, though, companies with huge cash piles are still opting to be weighted toward money funds versus securities. At the end of last year, S&P 500 nonfinancial companies' cash investment portfolios hit a historical high of 57% allocated to cash and cash equivalents, according to JPMorgan Chase strategists. Money funds have a mind of their own. Stock investors might do better to look elsewhere for clues about the future direction of the market."
In other news, ICI released its latest monthly "Money Market Fund Holdings" summary, which reviews the aggregate daily and weekly liquid assets, regional exposure, and maturities (WAM and WAL) for Prime and Government money market funds. This release says, "The Investment Company Institute (ICI) reports that, as of the final Friday in February, prime money market funds held 39.4 percent of their portfolios in daily liquid assets and 58.3 percent in weekly liquid assets, while government money market funds held 78.1 percent of their portfolios in daily liquid assets and 87.3 percent in weekly liquid assets." Prime DLA was up from 39.1% in January, and Prime WLA was up from 57.9%. Govt MMFs' DLA was down from 78.7% and Govt WLA decreased from 87.9% the previous month.
ICI explains, "At the end of February, prime funds had a weighted average maturity (WAM) of 35 days and a weighted average life (WAL) of 52 days. Average WAMs and WALs are asset-weighted. Government money market funds had a WAM of 41 days and a WAL of 86 days." Prime WAMs were 2 days longer and WALs were 2 days longer from the previous month. Govt WAMs were 3 days longer and WALs were 3 days longer from January.
Regarding Holdings by Region of Issuer, the release tells us, "Prime money market funds’ holdings attributable to the Americas rose from $481.39 billion in January to $504.42 billion in February. Government money market funds' holdings attributable to the Americas rose from $4,406.65 billion in January to $4,434.18 billion in February."
The Prime Money Market Funds by Region of Issuer table shows Americas-related holdings at $504.4 billion, or 49.8%; Asia and Pacific at $173.4 billion, or 17.1%; Europe at $319.1 billion, or 31.5%; and, Other (including Supranational) at $16.9 billion, or 1.8%. The Government Money Market Funds by Region of Issuer table shows Americas at $4.434 trillion, or 89.5%; Asia and Pacific at $128.2 billion, or 2.6%; Europe at $358.9 billion, 7.2%, and Other (Including Supranational) at $30.9 billion, or 0.6%.
