Bank of America strategist Michael Hartnett said money market funds took in $166.4 billion in the week through Oct. 7, the largest weekly inflow since April 2020. In his view, that cash is unlikely to leave defensive holdings in size unless the Federal Reserve begins a sustained and clearly visible easing cycle. Hartnett summed up the current positioning with a simple line: no rate cuts, no reduction in cash.
His argument pushes back on the familiar view that elevated cash balances will eventually become a major source of demand for equities. He said high cash levels do not automatically translate into a large future bid for stocks because cash itself is now offering relatively attractive yields. Markets are currently pricing the Fed’s next rate hike as more likely in December than at the late-October meeting, while rate markets also reflect the possibility of further tightening in the coming months. In that setup, cash is no longer a near-zero-yield waiting room. Money market funds and short-dated bonds can offer higher income with much lower price volatility than equities and long-term bonds, leaving investors with little reason to rush into more risk.
Bank of America strategist Michael Hartnett said money market funds drew $166.4 billion in the week through Oct. 7, the biggest weekly inflow since April 2020.
Hartnett said that as long as the Federal Reserve has not started sustained and clearly visible monetary easing, that pool of money will be hard to pull out of cash-like assets on a large scale in the near term. He summed up the current logic in one line: “No rate cuts, no reduction in cash.”
That view differs from the common argument that excess cash will eventually move into equities. Hartnett said elevated cash levels do not necessarily mean there is a huge future buying wave waiting for stocks, because cash itself is already offering relatively attractive yields.
The market is now expecting the Fed’s next rate hike to be more likely in December rather than at the late-October meeting. Rate markets are also pricing in the possibility of further tightening over the coming months.
In that environment, cash is no longer a near-zero-yield “waiting asset.” Money market funds and short-dated bonds can offer higher interest income, while showing much lower price volatility than stocks and long-term bonds. That leaves investors with little clear incentive to take on more risk quickly.
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