Investors poured money into cash funds at the fastest pace since the pandemic, and are unlikely to shift it anytime soon, according to Bank of America Corp.’s Michael Hartnett. The large amount of cash on the sidelines is set to stay there until there is “big monetary easing” and sustained interest-rate cuts by the Federal Reserve, the strategist wrote in a note Friday. Money-market funds had inflows of $166.4 billion in the week ended Oct. 7, the most since April 2020. “No rate cuts, no cash cuts,” Hartnett wrote.
The bond market expects another three rate hikes in the US by the end of July, with the next expected at the December meeting. Large reductions in cash holdings tend to coincide with instances of big monetary easing, Hartnett wrote. Stocks face increasing competition from bonds and cash, safer investments with appealing yields, as interest rates rise globally in the face of inflation.
Bonds saw a $33.8 billion inflow in the latest week, while $12.4 billion flowed into equities, according to BofA. Hartnett views the US midterms as the most likely reason for a big move in stocks going into 2027, an event that he’s taking a risk-off stance ahead given the current central-bank rate cycle and tighter financial conditions.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing