Morgan Stanley Warns $166.4 Billion Flows Into Money Market Funds; Cash May Not Return to Stocks Before Rate Cuts

Huoxing Finance reports that on October 9, Bank of America strategist Michael Hartnett stated that, as of the week ending October 7, money market funds attracted $166.4 billion in inflows—the largest weekly inflow 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 clearly increasing their allocation to cash-like assets. Hartnett noted that the current high-interest-rate environment has made cash itself highly attractive in terms of yield, and the large size of money market funds can no longer be simply viewed as “ammunition” waiting to re-enter the stock market. He summarized the current capital logic as: “No rate cuts, no reduction in cash,” and argued that only a sustained and significant monetary easing by the Federal Reserve is likely to drive large-scale outflows from cash-like assets. Recently, yields on U.S. 10-year and 30-year Treasuries have continued to rise, with the Federal Reserve raising its target range for the federal funds rate to 3.75%–4.00% in September. Amid persistently high cash yields and renewed bond attractiveness, the stock market is facing dual competition from cash and fixed-income assets. Hartnett also identified the U.S. midterm elections on November 3 as a potentially major event this year that could trigger significant stock market volatility, and warned investors to monitor risks such as deteriorating market breadth and rising long-term bond yields.