Money market fund cash inflows surge, recession fears lower
In a recent trend, markets have seen a substantial surge in cash inflows, with a total of $1.3 trillion pouring into money market funds. This influx includes $276 billion allocated to non-US equities and bonds. Notably, December witnessed a significant portion of these inflows, with around $40 billion flowing into the SPDR S&P 500 ETF trust (SPY), indicating renewed investor confidence.
Yahoo Finance’s Jared Blikre reports on previous trends and the relationship between cash demand and recession risks.
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Video Transcript
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- Market's melting up into the new year. Our own Jared Blikre has been taking a closer look at where the money has been flowing. He is here with the details. Hi, Jared.
JARED BLIKRE: Julie, I'm not going to spoil the party here. Money market funds, cash taking in $1.3 trillion. This just dwarfs everything else. Over here, we have non-US equity that stocks $70 billion from around the world but not the United States. $95 billion for American Securities, and bonds $276 billion. But as I said just a fraction of what money market funds took in this year.
And but, it's not all in equity, excuse me, it's not all in the money funds. Spy came back in December. We saw $40 billion or thereabouts in inflows, and that is the greatest amount ever. So if we go back to this slide from before, this tiny little sliver down here, one month of Spy was a significant portion of that so keep that in mind. Because as we come out of the fears of 2022, and the realization that we're either in for a soft landing or a no landing, the dynamics change a little bit.
And I want to show here. Cash demand moves with recession probabilities. In purple here we have 12 month, this is a rolling 12 month of money flows going back all the way to 2012. And in cyan here we have the New York Fed, their 12 month ahead recession probability, and this is informed by the yield curve, various inversions in there.
So we can see we have a big spike up here then we've had the greatest inversion in decades. So not surprisingly, we've seen this peak here but we also see an inflection down. And on a lagged basis, we're also seeing these money flows. Those money flows into the money market funds that is slowing down as well. Will the trend continue? Safe to say it's probably going to continue for a few months, but it could inflect back up again, or it could go sideways.
But I think it's instructive that here, remember back in 2018, 2019 we had a yield curve inversion, that was actually late 2019. And in 2020, in fact, we did get a recession, but of course, that was a pandemic, something totally different. But as fears came down, as money market funds became less involved because investors got a lot of FOMO, so all that action on the sidelines, guess what, that money flowed back into equities.
And so Goldman Sachs reminding us, and this goes back to 2007, this is money market fund, retail money market fund assets, when we had this decline in money market fund assets in 2009, 2010, 2011, that was a huge tailwind for equities. That was the beginning of that great bull run. And so here was that building period, and then that was the release.
Well, look at the building period here. We have two different legs from 2017, and then from about 2021, 2022 on, this could have significant tailwinds for any asset class around, any asset class around the world, and we'll just have to see where that gets back to. But I keep centering on this chart right here, just an unbelievable amount of money came into cash this year.
- Jared Blikre, thank you for that. Appreciate it.
