Over the last 5 tightening cycles, money has flown into short term investments, but not at the pace it has in the current one. Almost $1Tn has left banks deposits and other investments to be placed in money market funds. The last time flows were strong, was during the dot.com crisis in ‘99-02. At the time the Nasdaq corrected 38%, and the S&P500 23%. In todays market, there hasn’t been a correction yet. It would appear that money that was invested on corporate bonds and long treasuries, and above all, Bank’s time deposits, are the source of this movement. Contrarians will argue that it’s a bullish signal, since there is a lot of cash waiting to be invested in the equity market, but perhaps before that happens, valuations need to be adjusted. Earnings season is getting tough for the magnificent seven, which are priced to perfection and are the ones sustaining indices. Is the next movement for cash to be deployed in risky assets or should we clean some of the excesses first and then start from there?
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