U.S. Investors Cling to Record $7.7 Trillion In Money-Market Funds Amid Rate Cuts

US investors are steadfastly holding a record $7.7 trillion in money-market funds, with no immediate intentions of shifting the funds elsewhere.

Assets in money-market funds hit a record high last week. In the first week of September alone, over $60 billion was funneled into these funds, according to data from industry research firm Crane Data.

The influx into money-market funds began in 2022 when the Federal Reserve implemented a series of rate increases. These funds, largely composed of short-term government debt, started to yield higher returns, drawing in investors.

As per the report by The Wall Street Journal, despite the stock market reaching unprecedented highs, a considerable number of investors have kept a significant portion of their portfolios in cash like investments.

Even as the Federal Reserve scales back rates, this trend doesn’t seem likely to reverse anytime soon. Money-market funds continue to yield considerably more than they did in the 2010s and early 2020s, when rates were driven to extremely low levels in response to the financial crisis and the Covid pandemic.

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President of Crane Data Peter Crane referred to the situation as a “wall of cash,” noting that it’s not going anywhere soon.

Despite the rate reductions, many investors are content to wait for stock discounts and aren’t hurrying to relocate their money.

The persistence of this trend highlights the cautious approach of investors in the current economic climate. Despite falling rates, the high yields of money-market funds compared to their historical performance are still attractive.

This suggests that investors are prioritizing stability and liquidity over potential higher returns in the stock market.

The “wall of cash” in money-market funds represents a significant reserve of capital that could be deployed into the markets if investor sentiment changes, potentially driving significant market movements.

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