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There’s nearly $5 trillion parked in money markets as many investors are still afraid of stocks

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The stock market’s rapid rally from its March lows has brought the Nasdaq Composite back to record highs and the S&P 500 nearly positive for year, but trillions in cash remains parked on the sidelines.

The coronavirus sell-off sent investors fleeing into money market funds, which ballooned well above $4 trillion, surpassing the peak of the financial crisis, according to research by LPL Financial. The flood into money markets pushed the sector’s assets to the highest on record, peaking at $4.672 trillion during the week of May 13, according to Refinitiv Lipper, and even recent net outflows have left more than 90% of that increase intact.Money markets aren’t the only sign that investors aren’t holding cash outside of stocks and bonds. Deposits at banks have spiked as well, according to data from the Federal Reserve Bank of St. Louis.

Ryan Detrick, senior market strategist at LPL Financial, said the high cash levels showed that many retail investors were scared off by the earlier volatility and have missed out on the rebound.

“Even after the 45% bounce, give or take, in the S&P, we haven’t seen really the big part of the retail crowd come back in … It kind of shows again that a lot of people are really still on the sidelines,” Detrick said.

When the pandemic spread from China into other countries and slammed into the financial markets, it sparked the fastest ever 30% pullback in the U.S. stocks and liquidity issues in the debt market as investors tried to get their hands on cash.

Reported by CNBC

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