Inside Markets — Money Market Assets

Markets are priced for a rate cut at next week’s meeting followed by a pause in January (1/29 FOMC).  The forward OIS curve is currently priced for a ~3.75% Fed funds rate by year-end 2025, which is 35bp higher than the most recent 2025 dot (median Fed projection) of 3.4%.  This means the market should be able to absorb a slightly higher median ’25 dot and more hawkish forward guidance.

After a brief advance in late October, implied equity volatility (VIX) has returned to subdued and supportive levels in the low/mid-teens.  From a fund flows perspective, the last two weeks of December has historically been the third best two-week window of any calendar year.  Corporate buyback authorizations are at an all-time record high and the window remains wide-open through the end of next week.  And the best two-week window of any calendar year happens to be the first two weeks of January.

Money market assets are currently estimated at $9T – an all time record.  And while it’s just one source, we expect money market assets in tomorrow’s November Activity Report from SCHW to increase, which runs counter to the consensus view that individual investors were net equity buyers during the month.  We also expect to see another cash build in SCHW’s December Activity Report as retail clients take profits rather than chase momentum.

Fund flows usually slow after the second week of January when ~55% of SPX companies are also in a buyback blackout period.  Calendar Q4 earnings season starts of January 15 and it’s reasonable to expect some companies could issue less transparent FY’25 guidance due to policy uncertainty – specifically around tariffs.  Markets price in a discount for uncertainty and investors tend to sell opaque or downbeat guidance (ADBE today), which makes mid-January a logical time to look for a pullback of some kind.