The historic inflow to money market funds from institutional asset managers finally paused last week and that could mean investors are starting to believe in equities again after steering clear of making major investments over the last two months.
What happened: Money market funds, which are effectively savings accounts, saw just $1.41 billion of inflows for the week ending May 21, data from the Investment Company Institute showed — and it was entirely from retail investors.
- Institutional money managers pulled $8.58 billion out of money markets during the week, while retail investors added $9.99 billion, reversing the trend that had been in place since late March.
The big picture: Professional fund managers have moved more than $1 trillion into money markets since the week ending March 18, bringing total holdings to $4.8 trillion.
- That's a record high and close to $1 trillion more than the record level prior to 2020, during the Great Recession.
What they're saying: “The extreme attractiveness of stocks over bonds, particularly as rates have plummeted back to near zero, can be the catalyst for the rotation into stocks, driving the market higher,” Savita Subramanian, Bank of America's head of U.S. equity and quantitative strategy, said in a recent note to clients.
By the numbers: Investment in stocks among BofA's clients has fallen by 3 percentage points to 57.1% while cash allocations have risen to nearly 14%, well above the historical average dating back to 2005, she noted.
- The S&P 500′s dividend yield is more than three times the yield of the 10-year U.S. Treasury note — 1.95% vs. 0.66%, according to FactSet.
The bottom line: “As the economy enters what our economists forecast as the worst recession in the post war era, the market is telling us not to worry," Subramanian said. "And it is dangerous to ignore the market.”
