Strategists say that dry powder in money market funds, which reached a record high last month, may support stocks in weeks ahead, with fund managers rotating back into stocks or aggressively buying dips in the market.
The coronavirus sell-off sent investors fleeing into money market funds, which ballooned well above $4 trillion, surpassing the peak of the financial crisis, according to research by LPL Financial. The flood into money markets pushed the sector's assets to the highest on record, peaking at $4.672 trillion during the week of May 13, according to Refinitiv Lipper, and even recent net outflows have left more than 90% of that increase intact.
"Even after the 45% bounce, give or take, in the S&P, we haven't seen really the big part of the retail crowd come back in … It kind of shows again that a lot of people are really still on the sidelines," Detrick said. "Basically anything that was liquid and that you could sell was put up on the auction block," said Nela Richardson, investment strategist at Edward Jones.
With the end of the second quarter approaching, there could be a move from fund managers to reinvest that cash in stocks to reach allocation targets. Richardson said she expects the market to make a technical move higher as investors moved back into stocks or high yield bonds from cash, especially with interest rates so low.
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