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A record $7.3 trillion in money market funds could soon be reinvested elsewhere, according to Goldman Sachs.
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The bank’s trading desk noted that July’s seasonal uptrends set the market up for further gains.
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“The bar for being a seller of stocks right now is very high given the upcoming flows and random market dynamics.”
A “wall of money” is heading toward the stock market this summer and will propel stocks to record highs, according to a recent note from the Goldman Sachs trading desk.
Scott Rubner, chief executive of Goldman Sachs, noted in the note that a record $7.3 trillion is being invested. sitting in money market fundsand much of that is about to be pumped into stocks.
“I have a feeling we will see significant capital outflows in the money market,” Rubner said.
This could be especially true if the Federal Reserve begins to lower interest rateswhich is expected to take place at the Federal Open Market Committee meeting in September, based on federal funds futures data.
If the Fed cuts rates, the cash yield on money market funds is expected to fall from its current level of about 5%. This could encourage investors with high liquidity to look for other investment alternatives.
But Rubner said he thinks an influx of liquidity will likely hit the stock market in early July, as that marks the start of the third quarter and the start of the second half of the year.
This time of year typically coincides with passive stock models that purchase stocks.
“New quarter (Q3), new half year (2H), this is when a wall of money quickly hits the stock market,” Rubner wrote. “~9 basis points of new dollars are brought to bear each July. On $29 trillion in assets, this represents $26 billion of modeled inflows in July.”
The influx of new capital flows that could hit the stock market in July would also align with what has become a historically bullish time of year.
Rubner pointed out that the first 15 days of July were the best two-week trading period of the year since 1928. The best trading days of the year occur in the first week of July, and the month of July through it alone has been very positive for stock prices.
“These statistics are staggering for NDX over the last 16 years. NDX has been positive for 16 consecutive July months with an average return of 4.64%,” Rubner said of the Nasdaq100.
It’s a similar story for the S&P500which has been positive in July for nine consecutive years, with an average return of 3.66%.
With stocks already trading at record highs, Rubner’s expected gains would propel the stock market to new highs.
“The bar for being a seller of stocks right now is very high given the upcoming flows and random market dynamics,” he said.
Read the original article on Business Insider
