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A record $7.3 trillion in money market funds could soon be reinvested elsewhere, Goldman Sachs says.
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The bank’s trading desk highlighted that bullish seasonal effects in July set the market on course for further gains.
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“The bar for shorting stocks is very high right now, given the rising tide and random market dynamics.”
A “wall of money” is coming down on the stock market this summer and will push stocks to record highs, according to a recent note from Goldman Sachs’ trading department.
Goldman Sachs managing director Scott Rubner highlighted in the note that there is a record $7.3 trillion in money market funds, and much of that will flow into equities.
“My hunch is that we’re going to see a big outflow from the money market,” Rubner said.
That could be especially true if the Federal Reserve starts cutting rates, which is expected to happen at the Federal Open Market Committee meeting in September, based on Fed Fund Futures data.
If the Fed cuts rates, cash yields on money market funds should fall from their current level of about 5%. That could be the catalyst for cash-rich investors to look for other investment alternatives.
But Rubner said he thought there would likely be a flood of cash into the stock market in early July, as this represents the start of the third quarter and the start of the second half of the year.
That time of year usually coincides with passive equity models where shares are purchased.
“New quarter (Q3), new half year (2H), this is when a wall of money quickly hits the stock market,” Rubner wrote. “Approximately 9 basis points of new $$ is put to work each July. On $29 trillion in assets, that’s $26 billion of modeled inflows in July.”
The rush of new inflows that could hit the stock market in July would also align with what has become a historically bullish time of year.
Rubner emphasized that the first fifteen days of July have been the best two-week trading period of the year since 1928. The best trading days of the year fall in the first week of July, and the month of July itself has been very good. positive for share prices.
“These statistics are staggering for the NDX over the past 16 years. The NDX has been positive for July 16 in a row with an average return of 4.64%,” Rubner said of the Nasdaq 100.
A similar story applies to the S&P 500, which was positive for nine years in a row in July, with an average return of 3.66%.
With shares already trading at record levels, Rubner expects the gains to send the stock market to new highs.
“The bar for shorting stocks is very high right now, given the rising tide and random market dynamics,” he said.
Read the original article on Business Insider
