The $8.8 Trillion Cash Pile That Has Stock-Market Bulls Salivating

livemint.com:

Wall Street wants your money off the sidelines. Rising interest rates drew trillions of dollars into money-market funds and other cash-like investments in the past two years, with more than $8.8 trillion parked in money funds and CDs as of the third quarter of 2023. Investors are optimistic that with rates poised to fall, people will redirect that money and fuel markets’ next leg higher.

Vivek Trivedi, 37 years old, a pharmacist in Indianapolis, has around $80,000, or a bit more than 10% of his overall assets, in money-market funds and inflation-adjusted U.S. savings bonds (I bonds). He plans to eventually use that cash to buy a rental property but would consider investing it in blue-chip stocks in the meantime should interest rates fall and render yields less attractive.

“Every month, I’m looking at inflation," he said. “If I’m not earning at least 1.5% more than inflation, I have to think about different strategies." What Trivedi and others decide is key to what happens next in markets. Expectations that the Federal Reserve will cut interest rates later this year spurred big rallies at the end of 2023, driving major indexes near records.

That heat is beginning to dissipate. Some investors say markets have little room for further gains and are already priced for a perfect scenario, in which inflation moderates without significant job losses. Wall Street is pinning its hopes on cash moving from money-market funds to provide the next big boost.

Rates above 5% were flashy after years of safe investments offering little interest. Their fall could drive investors to U.S. stocks, which have historically provided the highest returns in the long run.