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Money Market Funds Poised for a Record $1.5 Trillion Influx from Investors

Sep 16, 2023 #Money Market

U.S. Bank Charts Show Record Inflows for Money Market Funds This Year

According to U.S. Bank, money market funds are poised to attract a record-breaking $1.5 trillion in new assets this year, driven by investors capitalizing on higher interest rates.

In a report released on Friday, U.S. Bank’s analyst Michael Hartnett stated, “Nothing demonstrates the bear market’s establishment more than a trillion-dollar influx into money market funds.”

Currently, most money market funds offer yields slightly above 5%, a significant departure from the near-zero rates before the Federal Reserve began raising rates in March 2022. Given their inherent risks and uncertainties, these higher rates have diminished the appeal of buying stocks.

Historically, the average annual return of the S&P 500 index has been around 7%, making a 5% risk-free return quite attractive to investors.

Currently, money market funds hold approximately $5.6 trillion in assets, and if U.S. Bank’s estimates hold, this figure may soon surpass $6 trillion.

However, if investors start deploying these funds into stocks, it could potentially bolster the stock market.

U.S. Bank’s Stephen Suttmeier mentioned earlier this week in another report that “a substantial amount of money could provide impetus for a year-end rebound.”

Suttmeier explained, “A 5% cash return lags the S&P 500’s year-to-date gain of 16.9%. Given the S&P 500’s solid performance in the first half of the year and its robust rebound through August, it wouldn’t be surprising to see investors allocate capital, driving the rebound into year-end.”