Given the massive jump in money market funds, which have risen by $1.088 trillion since Feb. 28 to $5.054 trillion, it was just a matter of time before Wall Street began breaking out its perennial "wall of cash" theory. Every time there's a downturn in stocks, strategist cite the $X trillion in money market funds as a potential source of stock market support. While there is merit in the theory, the truth is that the vast majority of money fund assets are institutional, and not destined for long-term investing, and the bulk of brokerage cash is now in banks. Nonetheless, the articles and the debate over cash potentially supporting stocks persists.
Reuters discusses the cash buildup in the article, "Massive U.S. stock bounce stokes doubts, provokes bears." They tell us, "Investors are treating the U.S. equity market's blistering rally with a dose of caution, socking away cash, staying on the sidelines or buying insurance against a reversal even as markets scream higher in the midst of the coronavirus pandemic. Fund managers and corporations have deployed over $1.1 trillion into money markets while the S&P 500 mounted a nearly 30% bounce from its March lows. Assets in such funds grew to a record $4.73 trillion in April."
They explain, "Gold and other popular haven assets have edged higher, while surveys show investors remain largely pessimistic.... Unprecedented stimulus from the Federal Reserve and U.S. government have been a key factor in boosting investor confidence and alleviating market stresses. Meanwhile, investors and corporations poured $512 billion into money market funds, typically viewed as low-risk, low-return investments, since March 25, more than in all of 2019, according to data from Investment Company Institute and Crane Data."
Reuters quotes our Peter Crane, "Institutions ... continue to build cash at a feverish pace.... No war chest is big enough for the coronavirus."
Barron's writes in, "A Lot of Cash Is on the Sidelines. That Could Limit Stocks' Slide, Yardeni Says," that, "U.S. stocks seem to have hit a ceiling after rallying throughout the month of April. Some investors are worried that the market might tumble again to retest its March low. Cash on the sidelines from the March selloff might help restrain how much stocks could fall."
"Any significant selloff in the bond and stock markets might be limited, as those who had dashed for cash now seek opportunities to rebalance back into bonds and stocks," the piece quotes Ed Yardeni, Chief Investment Strategist of Yardeni Research.
The piece tells us, "There was a mad dash for the haven in March as investors scrambled to sell assets and reduce risk in their portfolios amid the coronavirus fears. At the same time, American households have been cutting back spending relative to their income -- either due to worries about an upcoming recession or the shutdown of most non-essential stores, according to Yardeni."
It adds, "This has resulted in a boosted amount of cash at Americans' hands.... On the business side, fearing for an impending cash crunch, many companies have also drawn down their lines of credit since the beginning of the pandemic. Liquid assets soared $1.7 trillion from the end of February to a record $15.5 trillion in the week of April 20, as companies took large amounts of commercial and industrial loans and parked much of the borrowed cash in the money market funds."
Barron's writes, "A short and sharp relief rally means that many investors–sitting on a mountain of cash–have missed the chance to buy stocks at their bottom, says Yardeni. While the economy's uncertain outlook and stocks' expensive valuation might keep them on the sidelines for now, he brings up the usual conundrum following cash-outs–when to return?"
Finally, Crane Data published its latest Weekly Money Fund Portfolio Holdings statistics Tuesday, which track a shifting subset of our monthly Portfolio Holdings collection. The most recent cut (with data as of May 1) includes Holdings information from 78 money funds (down 16 from a week ago), which represent $2.568 trillion (down from $2.899 trillion) of the $4.561 trillion (56.3%) in total money fund assets tracked by Crane Data. (Note that our Weekly MFPH are e-mail only and aren't available on the website. For our latest monthly Holdings, see our April 13 News, "April MF Portfolio Holdings: Govt Securities Skyrocket; CDs, CP Down.)
Our latest Weekly MFPH Composition summary again shows Government assets dominating the holdings list with Treasury totaling $1.209 trillion (down from $1.248 trillion a week ago), or 47.1%, Repurchase Agreements (Repo) totaling $706.4 billion (down from $822.5 billion a week ago), or 27.5% and Government Agency securities totaling $470.4 billion (down from $556.6 billion), or 18.3%. Commercial Paper (CP) totaled $58.7 billion (down from $76.5 billion), or 2.3% and Certificates of Deposit (CDs) totaled $48.7 billion (down from $79.6 billion), or 1.9%. A total of $37.3 billion or 1.5%, was listed in the Other category (primarily Time Deposits), and VRDNs accounted for $38.0 billion, or 1.5%.
The Ten Largest Issuers in our Weekly Holdings product include: the US Treasury with $1.209 trillion (47.1% of total holdings), Federal Home Loan Bank with $295.2B (11.5%), Fixed Income Clearing Co with $138.4B (5.4%), BNP Paribas with $70.6B (2.7%), Federal Farm Credit Bank with $68.8B (2.7%), Federal National Mortgage Association with $52.5B (2.0%), JP Morgan with $52.1B (2.0%), Federal Home Loan Mortgage Corp with $51.1B (2.0%), RBC with $45.2B (1.8%) and Barclays PLC with $33.3B (1.3%).
The Ten Largest Funds tracked in our latest Weekly include: JP Morgan US Govt ($224.1B), Goldman Sachs FS Govt ($202.1B), Fidelity Inv MM: Govt Port ($186.0B), BlackRock Lq FedFund ($175.0B), Goldman Sachs FS Treas Instruments ($138.7B), JPMorgan 100% US Treas MMkt ($131.5B), Wells Fargo Govt MM ($131.4B), Morgan Stanley Inst Liq Govt ($113.1B), State Street Inst US Govt ($101.5B) and BlackRock Lq T-Fund ($91.9B). (Let us know if you'd like to see our latest domestic U.S. and/or "offshore" Weekly Portfolio Holdings collection and summary, or our Bond Fund Portfolio Holdings data series.)
