Wealthy investors are likely to pour money into stocks after amassing record cash levels

A trader works on the floor of the New York Stock Exchange (NYSE) on December 13, 2021 in New York City.

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Hundreds of billions of dollars in cash have been amassed by major investors in the final few weeks of 2021, setting the stage for a major risky move into the stock market in the new year.

Investors added more than $43 billion to money market funds last week, bringing their total cash raised over the past seven weeks to a whopping $226 billion, according to data from Goldman Sachs. Data shows that money market reserves have not shrunk in 2021 despite a rally in equities, with assets under management as cash equivalents standing near a record 4.7 trillion. USD, data shows.

“My core argument is that money is going to move out of negative real-yield cash and out of bonds in a strong way and out of bonds,” said Scott Rubner, analyst at Goldman Sachs global markets. in early 2022 following asset allocation meetings in the board room in December.”

“Every private-asset advisor in the world is holding ‘year-end allocation review’ meetings right now. The response has been largely that investors hold too much cash with inflation rising.” , said Rubner.

Investor cash allocations jumped 14 percentage points this month from November to a net 36% excess, the highest cash exposure since May 2020, according to the monthly survey of investors. Bank of America fund manager.

More moves away from cash could happen in January as people manage their initial bets for the year. According to Goldman, January typically accounts for 134% of annual inflows, meaning the month typically sees a large inflow, while the rest of the year has a net inflow.

It also speaks to Wall Street’s old theory of the “January Effect,” which believed there was a seasonal rally in stocks during the first month of the year.

All this marginal money could be the dry powder driving the next step of a risky asset if investors feel comfortable enough to take the risk. The S&P 500 has rallied more than 25% this year as markets climb a wall of worries from rising inflation to the ongoing pandemic to a return to monetary stimulus.

The market seems to have weathered one of the big uncertainties at the end of the year as stocks skyrocketed in a relief rally after The Federal Reserve Signals the unwinding of monthly bond purchases was more active. The central bank also signaled on Wednesday that its members see triple increase in 2022.

“We see another year of positive equity returns along with another bearish year for bonds,” said BlackRock strategists. “Central banks will start to raise interest rates but remain more tolerant of inflation. A dramatic restart of economic activity will be delayed but not derailed by new strains of the virus.” Wealthy investors are likely to pour money into stocks after amassing record cash levels

Sarah Ridley

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