September 21, 2023

Investors in biggest rush to cash since COVID

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By Lee Barney From Newsmax

Concerns of an economic slowdown are prompting investors to park cash in money market funds in the biggest rush since COVID broke out, according to Bank of America Strategists, Bloomberg reports.

In the week through Wednesday, global cash funds took in nearly $143 billion of inflows, the biggest amount since March 2020. In the past four weeks, investors have poured more than $300 billion into money market funds, whose assets now stand at $5.1 trillion—the highest on record.

“Credit and stock markets too greedy for rate cuts—not fearful enough of recession,” wrote BofA analysts lead by Michael Hartnett, in a Thursday note. The strategists expect investment-grade spreads and stocks will take a hit in the next three to six months.

Investors and markets have been on edge since the collapse of two U.S. banks, turmoil at First Republic Bank and the government-brokered takeover of Credit Suisse by UBS.

Meanwhile, the Federal Reserve and other central banks, undeterred, have continued to plow ahead with rate hikes.

Hartnett believes the Fed will, indeed, cut interest rates very aggressively over the next 12 months, but only when payrolls turn negative.

The analyst reminds investors that the biggest bull market recoveries “only occur after the biggest declines.”

When the market turns, Bank of America analysts will recommend buying “secular leadership of inflationary cyclicals—not old leadership of credit, private equity, large cap tech.”

Other notable flows that Bank of America cited were inflows to equities, even at the same time investors are snapping up money market funds. In the latest week, investors put $3 billion into emerging markets funds and $3.5 billion into U.S. growth funds.

The biggest outflows have been from U.S. equity funds, which had redemptions of $1.7 billion. Investors yanked $9.3 billion from U.S. value funds and, over the past two weeks, $1.2 billion from bond funds.

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