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Cash Is Now A $3-Trillion Safe Haven Bet

Cash

Cash in money market funds hit $3.07 trillion in the week ended January 9th, with a cool $19 billion added just last week. That’s after sailing past $3 trillion in December. Welcome to the cash-as-a-safe-haven reboot.

With regard to the $19 billion added just last week, we haven’t seen a level of cash investment like that since March 2010, according to Fortune, citing the Investment Company Institute.

So, is cash king again? Perhaps, it’s working its way to the throne, if nothing else.

Consider money market assets have been hovering around $2 trillion for the bulk of the past decade, and the road back to the throne has been cleared by a Q4 2018 equities downturn and the worst showing in a decade for the S&P 500. The S&P 500 index lost 14 percent in the fourth quarter, compared to a total gain of 9 percent in the first three quarters of 2018.

ICO data shows that equity funds saw $11.3 billion in outflows in the week ending January 2nd, while bond funds saw $14.2 billion in outflows that same week. Exchange-traded funds (ETFs) suffered horrendously, too, with withdrawals seeing another $7 billion this year, and outflows of over $1 billion for penny-stock ETFs and outflows of $0.7 billion for tech ETFs.

According to ICO, of the $19.08 increase in money market fund assets in the week ended January 9th, government funds increased by $2.55 billion, prime funds increased by $16.36 billion and tax-exempt money market funds increased by $165 million.

If it’s all about the S&P 500, then these piles of cash remain uncertain. We’ve seen a slight claw-back for equities that plunged in late 2018, but Stoltzfus reminds us that “we’re not out of the woods”.

And now we’re about to enter earnings season, and earnings growth estimates for Q4 2018 have dwindled to less than half what they were for the first three quarters of last year. Related: Hackers Tap Into The U.S. Electric Grid

The emerging picture is one of an earnings season that is “softer than the norm for this bull market,” Canaccord Genuity analyst Brian Reynolds wrote in a note to clients cited by Market Watch. Reynolds predicts that most companies will beat their estimates, but “most” means a below-normal number of companies. 

A confluence of events is bringing investors back to cash, including wariness over stock market volatility and higher short-term interest rates.

As cited by CNBC, John Stoltzfus, chief investment strategist at Oppenheimer, told clients in a Monday note that investors are skittish about the market right now and this is more directly a response to the downturn in equities.

Related: Markets Inch Lower As Investors Remain Cautious

But yields are also attractive after a lot of Fed pain.

“Cash is attractive at today’s levels. Yields have come up a lot without taking on too much risk,” Reuters quoted Collin Martin, director of fixed income with the Schwab Center for Financial Research in New York, as saying.

Cash is piling up, and it’s a “pretty good place to exist”, Deborah Cunningham, Federated Investors chief investment officer for global money markets, told the Star Tribune, “now that we’re in a slow-growth environment with interest rates normalized”.  

By Michael Kern for conil.me

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