{"id":13072,"date":"2024-03-26T19:31:26","date_gmt":"2024-03-26T19:31:26","guid":{"rendered":"https:\/\/zacksim.com\/blog\/?p=13072"},"modified":"2024-03-26T19:31:26","modified_gmt":"2024-03-26T19:31:26","slug":"will-a-wall-of-cash-hit-the-markets-if-rates-fall","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/will-a-wall-of-cash-hit-the-markets-if-rates-fall\/","title":{"rendered":"Will a &#8220;Wall of Cash&#8221; Hit the Markets if Rates Fall?"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\"><em>David B. from El Paso, TX asks: <\/em>Hi Mitch, I\u2019ve seen stories about a huge stockpile of cash sitting on the sidelines, which could make its way into the stock market if interest rates fall. Do you see this as a real possibility, or is there something else to the story here?<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Mitch\u2019s Response:<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Thanks for writing, David. You ask an interesting question, and I think the response has a few angles worth exploring.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">First, I\u2019ll set the stage for other readers by clarifying what you mean by the \u2018stockpile of cash sitting on the sidelines.\u2019 For context, we can look at the two charts below. The first chart is of assets in money market funds, and the second chart is total deposits at all commercial banks in the U.S. As the charts make clear, there has been a post-pandemic surge in cash, with money market funds sitting at over $6 trillion as of the end of last year, and deposits at $17 trillion as of the end of February.<sup>1<\/sup><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong><u><a href=\"https:\/\/go.steadyinvestor.com\/arrow-spending-in-retirement-guide?source=zim&amp;medium=blog&amp;term=steadyinvestor_spending_in_retirement_zim_03_21_2024&amp;content=spending_in_retirement\">How to Spend Money in Retirement &amp; Make Sure it Lasts<\/a><\/u><\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Retirement means living the life you want, in the place you want, with activities you enjoy. Of course, making all that happen means spending some of the money you\u2019ve worked so hard to accumulate.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">If you want to ensure your money will last, it&#8217;s essential to understand some strategies and best practices. Our free guide, <strong><em><u><a href=\"https:\/\/go.steadyinvestor.com\/arrow-spending-in-retirement-guide?source=zim&amp;medium=blog&amp;term=steadyinvestor_spending_in_retirement_zim_03_21_2024&amp;content=spending_in_retirement\">4 Strategies for Spending Money in Retirement<sup>2<\/sup><\/a><\/u><\/em><\/strong> offers some common-sense guidelines to help ensure your retirement nest egg lasts as long as possible. You\u2019ll also get insight on:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Spending 101: Understanding Tax Buckets<\/li>\n\n\n\n<li>The 4% Rule<\/li>\n\n\n\n<li>Dynamic Spending with the 5% Rule<\/li>\n\n\n\n<li>And more\u2026<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">If you have $500,000 or more to invest, download our guide <em>4 Strategies for Spending Money in Retirement<\/em>.<sup>2<\/sup>\u00a0Simply click on the link below to get your copy today!<br>\u00a0<br><strong><u><a href=\"https:\/\/go.steadyinvestor.com\/arrow-spending-in-retirement-guide?source=zim&amp;medium=blog&amp;term=steadyinvestor_spending_in_retirement_zim_03_21_2024&amp;content=spending_in_retirement\">Download Zacks Guide, <em>4 Strategies for Spending Money in Retirement<sup>2<\/sup><\/em><\/a><\/u><\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><em>Money Market Funds at Roughly $6 Trillion<\/em><\/p>\n\n\n\n<figure class=\"wp-block-image size-large is-resized\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"350\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2024\/03\/pic1-4-1024x350.png\" alt=\"\" class=\"wp-image-13073\" style=\"width:840px;height:auto\" srcset=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2024\/03\/pic1-4-1024x350.png 1024w, https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2024\/03\/pic1-4-300x102.png 300w, https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2024\/03\/pic1-4-768x262.png 768w, https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2024\/03\/pic1-4.png 1318w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\"><strong><em>Source: Federal Reserve Bank of St. Louis<sup>3<\/sup><\/em><\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><em>Deposits at All Commercial Banks at Roughly $17 Trillion<\/em><\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"350\" src=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2024\/03\/pic2-3-1024x350.png\" alt=\"\" class=\"wp-image-13074\" srcset=\"https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2024\/03\/pic2-3-1024x350.png 1024w, https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2024\/03\/pic2-3-300x102.png 300w, https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2024\/03\/pic2-3-768x262.png 768w, https:\/\/zacksim.com\/blog\/wp-content\/uploads\/2024\/03\/pic2-3.png 1318w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\"><strong><em>Source: Federal Reserve Bank of St. Louis<\/em><\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In short, these are historic levels of cash parked on \u2018the sidelines,\u2019 which investors have accumulated as a result of pandemic stimulus, a strong labor market, and higher yields ushered in by the Federal Reserve\u2019s rate hike and QT campaigns.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">As you point out in your question, a popular narrative that has emerged recently is the thinking that as interest rates fall (perhaps later in 2024), investors will ditch low yields in money market funds or savings accounts and instead, will invest the cash in the equity markets and\/or other risk assets, in search of higher yield. Bulls see this as a \u201cwall of cash\u201d that could drive equity markets higher.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">In theory, lower interest rates may encourage investors to seek out higher returns via higher risk, and we could see cash rotate from risk-free securities into equities and other risk assets. But I don\u2019t think investors should think of this relationship as either-or. In other words, not all cash is earmarked for investing when the time is right. As households grow wealth and the economy grows over time, we should expect to see cash balances across the economy generally rise as well.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">For instance, while the S&amp;P 500 is up nearly 10% year-to-date, money market funds have also seen a sharp increase, with some $150 billion in new funds through the first two months of 2024. Another recent study looked at the past four instances when the Federal Reserve was pausing or cutting rates, and found that money market funds continued to experience significant growth.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">To be fair to the bulls who see a \u201cwall of cash\u201d destined for risk assets like stocks, I do think a combination of falling interest rates and more optimism about economic growth could shift cash from money market funds and savings accounts into stocks, which could bolster returns. But I don\u2019t envision it being a seismic flow of assets as some pundits have suggested.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Now to shift a little bit, I\u2019m calling for all investors who are currently focusing on their retirement plan. You have diligently built your retirement nest egg through hard work and careful planning and may be wondering where to spend your money. <em>&nbsp;<\/em><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">There are many different strategies related to spending in retirement, and some of them are more complex than others. In our exclusive guide, <strong><em><u><a href=\"https:\/\/go.steadyinvestor.com\/arrow-spending-in-retirement-guide?source=zim&amp;medium=blog&amp;term=steadyinvestor_spending_in_retirement_zim_03_21_2024&amp;content=spending_in_retirement\">4 Strategies for Spending Money in Retirement<sup>4<\/sup><\/a>, <\/u><\/em><\/strong>we explore some effective strategies and best practices that investors should consider when developing a retirement spending plan. You\u2019ll get insight on:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Spending 101: Understanding Tax Buckets<\/li>\n\n\n\n<li>The 4% Rule<\/li>\n\n\n\n<li>Dynamic Spending with the 5% Rule<\/li>\n\n\n\n<li>And more\u2026<\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\">If you have $500,000 or more to invest and are ready to learn more, click on the link below to get your copy today!<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Since the pandemic, there has been a surge of cash into savings accounts and money market funds. Will this cash shift into risk assets like stocks? <\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[66,71],"tags":[],"class_list":["post-13072","post","type-post","status-publish","format-standard","hentry","category-mitchs-mailbox","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/13072","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=13072"}],"version-history":[{"count":2,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/13072\/revisions"}],"predecessor-version":[{"id":13076,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/13072\/revisions\/13076"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=13072"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=13072"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=13072"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}