Stock Bulls Watch $17 Trillion Burn a Hole in Pockets

(Bloomberg) — In the stock market, the refusal of retail investors to back out of any macro threat has become the only recourse. When will it end? Judging by the size of all the cash lying around, it could take a while.

Of all the economic stories about the pandemic, the one about money piling up in people’s accounts was the most important in the stock market, where the S&P 500 just posted its seventh gain in nine weeks. Money market accounts, seen in some circles as a “dry powder” reserve for betting stocks, are just under $4.5 trillion. A more obscure balance, the tally of the money the Federal Reserve holds on deposit with commercial banks, rose 33% from 2019 to $17 trillion.

While none of the money is completely unencumbered and professionals tend to hate the concept of ‘cash on the sidelines’, something is arming the executives of day traders who are bent on not letting the market sell out for more than 24 hours. . Take, for example, Monday, when fears that the delta variant would improve progress pushed the S&P 500 down as much as 2.2%. Dip buyers came to the rescue then and throughout the week, pushing the S&P 500 up nearly 2% through Friday, despite virus cases continuing to rise.

“We have investors eager to put in cash,” said Sara Rajo-Miller, investment advisor at Miracle Mile Advisors. “People sometimes forget how much power small investors can have over the market, and we’ve clearly seen that. That momentum can really push stocks up.”

How powerful is the retail gun? On Monday alone, they bought a record $2.2 billion worth of shares, with the largest exchange-traded fund the S&P 500, ticker SPY, alone posting a record high of $482 million in retail purchases, according to Vanda Research. An analysis by DataTrek Research showed that Google searches for the phrase “dow jones” in the US — the term most associated with investing in the stock market, the company says — peaked as stocks fell rapidly, peaking at 1 p.m. in New York. York.

“It’s almost as if investors are seasoned to say, stocks are down, it must be a buying opportunity,” said Gene Goldman, chief investment officer at Cetera Financial Group. “That’s partly because there’s no other game in town right now. You look at bond yields that are so low, cryptocurrencies that are struggling, other parts of the market are not so great.”

The unending appetite for stocks led stock ETFs to break their annual record in April, and the pace has not slowed since. In July, products have already brought in more than $15 billion, bringing total inflows from ETFs to the brink of a full-year record, with more than five months to go.

Still, other measures of retail prowess paint a mixed picture. Data from Charles Schwab shows that the percentage of cash in their clients’ brokerage accounts fell to 10.5% in June, the lowest percentage since 2018.

“That probably suggests that the dry powder has been put to work over the course of the year, but it may not have quite run out of fuel for further investment,” said Jeffrey Kleintop, chief global investment strategist for Charles Schwab & Co. a lot of momentum and the desire to put money to work and look for alternatives to the bond market that remains relatively unattractive.”

The balances of retail money funds are still $1 trillion up from $643 billion in 2015, according to DataTrek, with analysts calculating that there is $400 billion in “buy the dip” cash ready for the next withdrawal. In addition, retail favorite Robinhood has 13 million more funded accounts than it did before the pandemic.

“The buy-the-dip mentality is the one the Fed has taught institutional and retail investors to follow, and the Fed remains hyper-easy,” said Jim Smigiel, SEI’s chief investment officer. “The biggest positive there is is that the easygoing stance of the Fed and every other central bank is there and will be for quite some time to come.”

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