This year represents the most difficult period for the markets, which made some investors turn to cash as a safe haven. They take advantage of higher interest rates and at the same time look for opportunities to buy stocks and bonds at lower prices.
The Fed disrupted markets in 2022; He raised interest rates dramatically in an attempt to ease the inflation that markets have not seen in 40 years, and although money market funds have achieved almost nothing since the pandemic began in 2020, they are now benefiting from this interest rate hike, which is what Making liquidity at the present time more attractive to investors looking for a safe haven from market volatility.
What confirms this is that a large-scale survey conducted by Bank of America Global Research showed that fund managers increased their average cash balances to 6.1% in September, the highest level in more than two decades, while assets in money market funds remained high since they jumped following the pandemic began. ; It reached $4.44 trillion as of last month, according to Refinitiv Libre; And that’s not far from its peak of $4.67 trillion in May 2020.
This is attested by Paul Nolte of Kings View Investment Management, who said that cash is now a recoverable asset class because of what happened to interest rates, and stated that the portfolios in which he manages are now 10% to 15% of cash, following it was usually less than 5%. He believes that this gives him the opportunity in two months to look at the financial markets around him and redeploy if the markets and the economy are looking better.
- Liquidity is progressing
Investors look forward to next week’s Federal Reserve meeting; Where the central bank is expected to raise interest rates once more following the consumer price index report last week, which came higher than expected, and the “Standard & Poor’s” index fell by 4.8% last week and by 18.7% this year, while the Bank of US Treasuries are on pace for their biggest ever annual decline.
At the same time, taxable money market funds returned 0.4% through the end of August, according to the Crane Index, which measures the average of the 100 largest funds of this type.
The average return in this index was 2.08%, up from 0.02% at the beginning of the year and the highest level since July 2019. “It looks better and its competition looks worse,” said Peter Crane, president of Crane Data, which issues the fund index.
Of course, staying in cash has its drawbacks (such as missing an opportunity for a sudden reversal that raises stock and bond prices), and inflation, which reached 8.3% on an annual basis last month, weakened the attractiveness of liquidity.
Mark Hackett, head of investment research at Nationwide, said: “While there is a clear sign of caution among investors, extreme levels of cash are sometimes seen as a contrarian indicator that bodes well for stocks, especially when other measures of pessimism are taken into account. investors. He believes that stocks may remain volatile in the near term amid various risks such as potential earnings weakness, rising inflation and Fed tightening, but he is more optimistic regarding the outlook for stocks over the next six months.
“His portfolio of US stocks made up of exchange-traded funds is currently 48% liquid, following being invested almost entirely in the stock markets last year,” said David Kotok, chief investment officer at Cumberland Advisors.
He added: “Stocks are expensive and subject to the risk of high interest rates, the possibility of a Fed recession and geopolitical tensions, so he prefers cash so that he can be re-published in the stock market when prices fall, and because the opportunity is not known when it will be available, Having liquidity is the only way to seize opportunities when they come.”
Highlights of the week
(EDT)
- Monday 19 September
10:00 National Association of Home Builders Index for September.
- Tuesday 20 September
8:30 building permits for August.
8:30 New home construction for August.
- Wednesday, September 21
10:00 Existing Home Sales for August.
14:00 Federal Reserve statement.
14:30 Federal Reserve Chairman Jerome Powell’s press conference.
- Thursday, September 22
8:30 Initial claims for unemployment benefits September 17th.
8:30 Continuing applications for unemployment benefits September 10.
8:30 Current account deficit (% of GDP) – second quarter.
10:00 Leading Economic Indicators/August.
- Friday 23 September
9:45 S&P Manufacturing PMI for September.
9:45 S&P Services PMI for September.