Bank of America strategists pointed out that investors are still flocking to cash funds in large quantities, according to historical data, redemption behavior may not begin until a year after the Federal Reserve rate cut.
According to a report by a team of Bank of America strategists, money market flows have typically risen in the past five rate-cutting cycles as the market anticipates the first rate cut. But once the actual rate cuts begin, capital inflows slow down significantly and even begin to trend out of the market. According to them, it usually takes about 12 months to pass before the outflows begin.
The strategists cited data from EPFR Global showing that investors are still flooding into cash funds at the moment. Inflows reached $82 billion as of last Wednesday. Money market funds have seen even higher annualized inflows of $1.2 trillion, the second-highest level on record.
Cash funds have been attracting large inflows in recent months, far outpacing other asset classes such as stocks. This suggests investors may have missed out on the 34% rise in the S&P 500 since the beginning of 2023.
U.S. stocks fell this Thursday despite the fact that they have been climbing on the back of optimistic developments in artificial intelligence and an economy that has outperformed expectations. Rising oil prices and a series of hawkish comments from Federal Reserve officials made traders uneasy. Investors poured $7.1 billion into U.S. stocks in the week before they fell, according to the report.
