Investors are holding over $7.6 trillion funds and they’re not moving it into Wall Street

There’s now over $7.6 trillion just sitting in money market funds, doing absolutely nothing flashy. That’s the highest on record, according to Crane Data, and most of this cash isn’t under mattresses or stuffed in sock drawers, but sitting in accounts earning around 4.3% thanks to the Federal Reserve’s interest rate ￰0￱ yield has been good enough to keep both retail investors and institutions parked right where they ￰1￱ the Fed is ready to cut rates for the first time in a year, possibly by 25 to 50 basis ￰2￱ should lower the returns on cash-like ￰3￱ yet, don’t expect investors to suddenly throw their money into Wall ￰4￱ time the “wall of cash” theory pops up, it gets dragged out, hyped up, then proven ￰5￱ prepares rate cut, but the cash stays put The ￰6￱ market shows weakness, and inflation still hasn’t cooled off ￰7￱ the Fed’s dual mandate (keep inflation low and employment high) is under ￰8￱ Antoniewicz, chief economist at the Investment Company Institute, says the pace of cuts will depend on incoming data, and as yields on cash weaken, some money could start drifting into stocks and ￰9￱ it won’t be ￰10￱ also flagged a big shift coming: the SEC might soon allow every mutual fund to launch an ETF share ￰11￱ would give investors more ￰12￱ far, 70 fund managers have applied for the ￰13￱ the ICI says hundreds more are lining up if the green light ￰14￱ even with that, it’s not triggering a stampede out of ￰15￱ Crane, head of Crane Data, isn’t convinced any of this means the floodgates are about to open.

“The rates matter but much less than most people believe,” he ￰16￱ the 52-year history of money market funds, the only times their balances actually dropped were during the dotcom bust and the 2008 financial ￰17￱ were moments when the Fed dropped rates to ￰18￱ says that’s what it takes to drain money out of these funds. “Dream on Wall ￰19￱ makes for a good talking point, but the $7 trillion is not going anywhere but up.” Institutional investors aren’t shifting anything This isn’t just retail cash ￰20￱ 60% of these money market funds now belong to institutions and ￰21￱ means the bulk of this money isn’t going to jump into Wall Street, no matter how many points the S&P 500 tacks on.

Sure, maybe 10% of the funds could move into riskier assets, but even that’s a guess, as there’s no hard ￰22￱ when compared to the $20 trillion Americans keep in regular bank accounts earning almost nothing, money funds still look ￰23￱ if the Fed cuts rates down to 3%, those funds still offer way more than the 0.5% you get at banks. “It’s more about how big is the rate differential,” Crane said . A quarter-point cut won’t change much when people remember earning zero just a few years ￰24￱ if yields fall to 3.8%, Crane said, “is anyone going to care?” Most balances in money funds aren’t ￰25￱ you’ve got $5,000 sitting there, a 1% swing in yield isn’t worth making a move.

“You just spent more money thinking about the problem than you are earning,” Crane said. “Nothing is worth doing for less than 1% or one hundred bucks.” Even if the Fed cuts rates next week, money funds don’t react ￰26￱ funds have 30-day weighted maturities, so it takes time for older high-yielding assets to roll ￰27￱ there’s a jumbo cut, Crane actually expects a short-term boost in money fund balances since they’ll look better than treasuries, which react faster. “Over the long term, it is a negative,” Crane ￰28￱ short-term? No big ￰29￱ Sohn, ETF strategist at Strategas Asset Management, ￰30￱ money market fund rates drop below 3%, after-tax yield looks weak.

“Perhaps you are risk averse and just want to keep it there,” Sohn ￰31￱ for those thinking about shifting, the first move is going out on the curve, buying treasury ETFs with two-to-five-year ￰32￱ gives a shot at price gains and yield, without credit ￰33￱ also mentioned bond ladder ETFs , which hold treasuries across different maturities to lower ￰34￱ those still chasing returns, stocks are always an option, but Sohn warns most portfolios are already overweight big ￰35￱ top eight tech stocks now make up nearly 40% of the ￰36￱ more? Probably pointless. Don’t just read crypto ￰37￱ ￰38￱ to our newsletter. It's free .