Inside Markets — Money Market Inflows
Money Market Inflows
January 22, 2025
The SPX has now cleared the technical overhang from late December with most of early-January inflows hitting money market funds rather than equity or fixed income markets. January is the largest month of inflows for any given year and it’s usually the largest month of the year for equity inflows (401k allocations). Post-inauguration caution is the likely driver behind the larger-than-usual money market inflows this year. Note that US money market fund assets are now a record $8.2T out of a global money market total of $9.7T. This caution can now also be seen in traditional sentiment gauges like the AAII poll, where 40.6% of respondents to last week’s survey identified as ‘bearish,’ while only 25.4% identified as bullish. That’s the highest bearish and lowest bullish reading since the week of November 2, which followed an ~11% correction over the preceding 3 months. As a reminder, equity sentiment is only a contrarian indicator at extremes. Current levels are best described as ‘elevated,’ but we highlight the numbers in the context of a bullish technical trend, positive macro backdrop and strong early CQ4 results. It’s not just individual investors who are cautious/bearish, it’s also hedge funds who have added 1.9x more short sales than long buys for the first two weeks of January.
Elevated bearish sentiment and high short interest is a recipe for a potential performance chasing rally in the week ahead given: 1) the CBOE Volatility Index (VIX) has now fallen below its short and long-term moving averages at ~16, which opens the door for volatility-targeting strategies to add leverage; 2) the corporate repurchase window is currently ‘closed,’ but reopens next week with ~45% of the SPX market cap returning as a potential demand source. We expect corporate buybacks to be the single largest source of equity demand again this year with authorizations exceeding $1T.
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