Money Market Assets See Biggest Jump in Three Years

Sending cash to money market funds was a popular endeavor during the week ended Jan. 10, according to the latest data from Investment Company Institute (ICI). From Jan. 3 to Jan. 10, investors stuffed some $67.7 billion -- the largest one-week increase in three years -- into money market funds, which brings the total residing in money market funds to an all-time high of $1.936 trillion.

Money Market Balances

Source: Investment Company Institute

What makes the big jump in assets so surprising is that the huge inflows occurred during the week following the Federal Open Market Committee's decision to cut interest rates -- a move that sent the stock market soaring. Most notable about the inflows is that of the $67.7 billion that made its way into money market funds, $49 billion, or almost 75%, came from institutions. Retail investors accounted for just $18.7 billion. The big move into money market assets, however, may not indicate that institutions are growing more bearish on the heels of a Fed cut. Instead, Jamie Doyle, manager of public information at ICI, suggests that with a Fed cut it makes more sense for corporate managers to shift money into money market assets. "When the Fed dropped interest rates, we believe institutions sold off their commercial paper," he says. Doyle says that money market rates hold more firm than corporate paper, which is impacted more by interest rate cuts. "So the shift out of commercial paper and into money markets makes sense. That's just good financial planning," Doyle says. Still, with the stock market volatility and terrible market returns of last year, some believe the increase in money market assets is not surprising. After all, a nice 5%-6% return looks pretty good vs. last year's results. If investors are feeling more cautious, then the new cash in money market assets may just stay put for a while longer, at least until investors figure out what the Fed is going to do with interest rates.

Related Metrics Assets in Money Market Funds Cash as a Percentage of Mutual Fund Portfolios Mutual Fund Inflows/Outflows ** Back to Metrics **

Why This Metric Matters Cash levels can rise in money market funds for any number of reasons. Investors may move money out of stocks and into money market funds for fear of market conditions. Perhaps they're just taking some profits in the midst of a bull market. Or they may be setting aside money for specific purchases, like a new home or a car. Whatever the reason, money market funds represent assets that could eventually make their way back into the stock market or the broader economy. Short term, a sharp spike in money market assets is not seen as a good sign for stocks, as it's money not finding its way into equities. But longer term, these funds represent a potential source of assets that could help fuel the market, or at least economic growth.

How Often Updated on TSC Weekly, on Thursday afternoon

Historical Info This metric has been followed by Investment Company Institute, the mutual fund trade group, since 1974. Money market balances reached a record high of $1.870 trillion in December 2000.

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