- Investors are putting an increasing amount of their cash into money market funds.
- The multitrillion-dollar flood into the funds comes as risk-free interest rates top 5%.
- Bank of America believes this "mountain of money" could help fuel a year-end stock market rally.
Our Chart of the Day is from Bank of America, which shows that investors are still piling into money market funds amid a period of rising interest rates.
The chart shows that net assets of all money market funds has hit a record high, topping $5.625 trillion last week, as investors seek to gain a risk-free rate of 5% rather than putting their money at risk by buying stocks or long-duration bonds.
"Investors love cash," Bank of America's Stephen Suttmeier said in a Tuesday note.
The surge in interest rates comes more than a year after the Federal Reserve began its aggressive tightening cycle to tame inflation.
Now, most money market funds offer a net yield of about 5.1%. By contrast, rates were at or near 0% for much of the 2010s, when money market funds had between $2.5 trillion and $3 trillion in assets.
But Bank of America believes the flow of capital could shift, with the record amount currently in money market funds representing a potentially big catalyst for stocks.
"A mountain of money can provide fuel for year-end rally," Suttmeier said, adding that seasonality trends favor a continued move higher in stocks.
"Cash at 5% lags the year-to-date S&P 500 return of 16.9%. Since the S&P 500 can continue [to] thrive after solid returns for [the] first half and a strong year-to-date rally through August, it would not surprise us to see investors put cash to work and fuel a rally into yearend," he added.