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Most Significant Increase in Money Market Funds Since Financial Crisis in 2008


For six months, investors have turned to money market funds to ensure that the money that they have invested remains safe. According to reports from FactSet and Bank of America Merrill Lynch, the industry was able to grow by $322 billion throughout the said period. Due to the significant influx, assets have reached $3.5 trillion in value. This data was found to be the fastest increase in funds since the latter half of 2008 when Lehman Brothers experienced a financial crisis. 

Although this event is unfavorable to all, the good news is that there is no other way but up now. If the situation follows that of the financial crisis in 2008, amazing offers and buying opportunities may arise soon enough for those involved in the stock market. In the first half of 2009, Wall Street started a bull market, which broke records in terms of longevity. 

Quincy Krosby, the Prudential Financial chief market strategist, said that from a contrarian standpoint, you can consider the money market flow to be still positive. If the market does not fluctuate as much and can stabilize, the money will go back into the equity market. 

The reported total money market assets seem to be the highest now since 2009. Funds have continuously grown every month of the year so far, except for April. These occurred due to different struggles in the stock market, primarily the ongoing trade war between the U.S. and China. Many investors were also worried that the U.S. could be undergoing a recession soon. 

Because of the many shocking headlines, investors are looking for a way to keep their cash safe. They are concerned that they will lose all their money if they do not decide to turn to money market funds. Whether or not the country will go into recession, stock market participants find it risky to place their money in the market. 

For the past year, stocks have been fluctuating too much. One could say that it has been like a rollercoaster ride. Many times shares have fallen in value due to the trade dispute between the two countries. Whenever the U.S.-China talks resumed, people received rays of hope as stocks rose. The White House recently shared how The Dow Jones Industrial Average was able to increase by 400 points last Friday. This favorable situation could be an outcome of last week’s trade talks.

If the two countries can successfully pull off their negotiations, the economy could stabilize and avoid a recession. Once this happens, Wall Street could create a similar situation from a decade ago. They can accelerate, and stocks will stop tumbling and increase steadily. 

Although the current events and that of 2008 may seem similar, there are still key features that differentiate them. In 2008, both the U.S. and the global economy were low, which forced investors to turn to money markets to avoid losing all their capital. They had no other choice. However, it was also in 2008 and early 2009 when Cboe Volatility Index hit a high, which no one has been able to top as of yet. 

Money market funds were still able to benefit a lot from the current situation, even if their funds have yielded only 2%. Earlier this year, funds were about 2.47%. However, it has fallen due to the Federal Reserve rate cuts. 

This data doesn’t necessarily show that investors are putting their money into the market funds to wait for a chance to put it to work. Instead, they are tired of the fluctuations in the market. They would rather sit their money out until all the uncertainties pan out.

According to the head of ClientFirst Strategy, Mitch Goldberg, investors need to pay much more attention to their economy, their risk tolerance, time frame, and ultimate financial goals.