Bank of America Warns: $166.4 Billion Floods into Money Market Funds in a Single Week, Cash May Not Return to Stocks Before Rate Cuts

October 9 - Bank of America strategist Michael Hartnett said that in the week ending October 7, money market funds attracted $166.4 billion in inflows, the largest weekly scale since April 2020. During the same period, bond funds and equity funds received $33.8 billion and $12.4 billion in inflows, respectively, indicating that investors are significantly increasing their allocation to cash-like assets.

Hartnett pointed out that the current high interest rate environment makes cash itself highly attractive in terms of yield, and the massive size of money market funds can no longer be simply regarded as "ammunition" waiting to enter the stock market. He summarized the current logic of capital flows as "no rate cuts, no reduction in cash," and believes that only if the Federal Reserve initiates sustained and significant monetary easing is it more likely to drive large-scale capital out of cash-like assets.

Recently, U.S. 10-year and 30-year Treasury yields have continued to climb, and the Federal Reserve raised the target range for the federal funds rate to 3.75%-4.00% in September. Against the backdrop of cash yields remaining high and the attractiveness of bonds recovering, the stock market is facing dual competition from cash and fixed-income assets.

Hartnett also regarded the U.S. midterm elections on November 3 as an important event that could trigger significant stock market volatility this year, and reminded investors to pay attention to risks such as deteriorating market breadth in U.S. equities and rising long-term bond yields.