WSJ: Dash for Cash Not Over Yet
The Wall Street Journal asks, "When Will Money-Market Funds Lose Their Allure?" It states, "Americans' dash for cash isn't over yet. Investors have poured $126 billion into money-market funds since the Federal Reserve's jumbo-size interest-rate cut. That sent assets in such funds to a record $6.76 trillion as of Tuesday, based on Crane Data.... The trillions of dollars sitting in cash has been a fixation for big Wall Street investors and market watchers alike. They have been trying to divine what the sum will mean for the path of stocks, which have historically provided the highest returns in the long run. Skeptics say some Americans have simply shifted their savings to higher-yielding money markets from traditional bank accounts -- and they question the idea that a pile of cash is waiting on the sidelines to enter the market." The piece tells us, "Although interest rates are falling, many investors say they are still high enough that it makes sense to keep a fair amount of money in cash. Yields on money-market funds recently stood at 4.9%, after peaking at 5.2% in December. Stock valuations, meanwhile, are elevated, and investors are fretting that the economy is beginning to lose some of its momentum. Together, those factors make money-market funds and other defensive assets look like prudent investments." The Journal quotes, "Institutional money-fund assets have typically increased by an average of 3.8% during months in which the Fed has trimmed interest rates, according to an analysis by Crane Data going back to 1990. The past five times the Fed began trimming interest rates, assets in such funds peaked about nine months after the first rate cut, according to Bank of America data since 1988.... [Invesco's Laurie] Brignac and other analysts say they don't expect interest in money-market funds to subside until yields fall to about 3%." The article adds, "Income generated from money markets surged to more than $27 billion in August, a record on an inflation-adjusted basis in Strategas Securities data going back to 1990. That has offered a boon to the wallets of many Americans that is now set to subside."
