Morningstar analyst challenges the belief that a historic amount of cash will fuel the stock market rally
- A record $6 trillion in cash is sitting in U.S. money-market funds
- Some believe this cash represents dry powder waiting to be deployed in the stock market
- Morningstar analyst disputes this notion
- Ratio of money in money-market funds to risky assets hasn’t changed significantly
- Money flowing into money-market funds has slowed
- Evidence shows major drawdowns in money-fund assets occur during bear markets
- Investors should not rely on cash on the sidelines to propel stocks higher
A record pile of cash is sitting in U.S. money-market funds, leading some to believe that this cash represents dry powder waiting to be deployed in the stock market. However, Morningstar analyst Sylvester Flood disputes this notion, stating that the ratio of money in money-market funds to risky assets hasn’t changed significantly. While $1.2 trillion has flowed into money-market funds since October 2022, pushing their total assets to over $6 trillion, the proportion of money in these funds compared to the investable universe of risky assets remains normal. In fact, the ratio of money funds to long-term assets is only slightly higher than the average dating back to 2011. Additionally, the pace of money flowing into money-market funds has slowed, with significantly lower inflows in February compared to January. Flood argues that investors should not rely on the idea of cash on the sidelines to propel stocks higher, as evidence shows that major drawdowns in money-fund assets typically occur during bear markets. Therefore, investors should not expect a surge in cash to rescue the stock market. It is important for investors to consider other factors when making investment decisions.
Factuality Level: 9
Factuality Justification: The article provides a detailed analysis of the amount of cash sitting in U.S. money-market funds and debunks the myth that this cash represents ‘dry powder’ waiting to be deployed in the stock market. It includes quotes from analysts and data from Morningstar to support its claims. The information presented is factual and objective, without sensationalism or bias.
Noise Level: 3
Noise Justification: The article provides a detailed analysis of the amount of cash sitting in U.S. money-market funds and challenges the popular narrative of ‘cash on the sidelines’ myth. It includes quotes from analysts, data from Morningstar, and historical evidence to support its claims. The article stays on topic and provides valuable insights for investors.
Financial Relevance: Yes
Financial Markets Impacted: The article discusses the level of cash in money-market funds and its potential impact on the stock market.
Presence Of Extreme Event: No
Nature Of Extreme Event: No
Impact Rating Of The Extreme Event: No
Rating Justification: The article primarily focuses on the level of cash in money-market funds and its potential impact on the stock market. It does not mention any extreme events or their impact.
Public Companies: Morningstar (Unknown), Ned Davis Research (Unknown)
Key People: Sylvester Flood (Analyst at Morningstar), Brett Arends (MarketWatch Analyst), Joseph Kalish (Chief Global Macro Strategist at Ned Davis Research)
www.marketwatch.com 
