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A report $7.3 trillion in cash market funds may quickly be reinvested elsewhere, Goldman Sachs says.
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The financial institution’s buying and selling desk highlighted that bullish seasonals in July set the market up for additional features.
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“The bar for being quick equities proper now could be very excessive given these upcoming circulation and random market dynamics.”
A “wall of cash” is headed for the inventory market this summer time and can drive equities to report highs, based on a latest be aware from Goldman Sachs’ buying and selling desk.
Scott Rubner, a managing director at Goldman Sachs, highlighted within the be aware {that a} report $7.3 trillion is sitting in cash market funds, and a big chunk of that’s poised to circulation into shares.
“My hunch is that we are going to see some huge cash market outflows,” Rubner stated.
That may very well be very true if the Federal Reserve begins to minimize rates of interest, which is anticipated to occur on the September Federal Open Market Committee assembly based mostly on fed fund futures knowledge.
If the Fed cuts charges, then the money yield on cash market funds ought to drop from its present degree of about 5%. That may very well be the catalyst for traders with excessive ranges of money to hunt different funding alternate options.
However Rubner stated he thought a flood of money was prone to hit the inventory market initially of July, because it represents the beginning of the third quarter and the beginning of the second half of the 12 months.
That point of the 12 months sometimes coincides with passive fairness fashions shopping for shares.
“New quarter (Q3), new half 12 months (2H), that is when a wall of cash comes into the fairness market rapidly,” Rubner wrote. “~9 bps of latest $$ will get put to work each July. On $29 trillion in belongings, that’s $26B in modeled July inflows.”
The frenzy of latest inflows that might hit the inventory market in July would additionally align with what has grow to be a traditionally bullish time of the 12 months.
Rubner highlighted that the primary 15 days of July have been the perfect two-week buying and selling interval of the 12 months since 1928. The very best buying and selling days of the 12 months happen within the first week of July, and the month of July by itself has been extremely constructive for inventory costs.
“These stats are staggering for the NDX over the previous 16 years. NDX has been constructive for 16 straight July’s with a mean return of 4.64%,” Rubner stated of the Nasdaq 100.
It is a comparable story for the S&P 500, which has been constructive in July for 9 straight years, with a mean return of three.66%.
With shares already buying and selling at data, the features Rubner expects would ship the inventory market to recent highs.
“The bar for being quick equities proper now could be very excessive given these upcoming circulation and random market dynamics,” he stated.
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