The stock market still has a $7 trillion secret weapon that could boost gains into year-end
That's according to Wall Street strategists, who say that a big reason to be bullish on stocks in the near term is the record $7 trillion in cash investors have stored in money markets fund.
That money — sidelined in assets like US Treasurys, money market mutual funds, and other short-term, highly-liquid debt instruments — could eventually make its way back into equities. That would be a huge boom for stocks, according to Savita Subramanian, the head of US equity and quantitative strategy at Bank of America.
"We've still got a lot of cash, still got a lot of fixed income on the plate," Subramanian said, speaking to CNBC on Wednesday, speculating that money could make its way into equities once the Fed resumes its rate-cutting cycle.
Central bankers trimmed rates twice in late 2024, but have held off on a third rate cut as they assess the impact of tariffs on inflation.
But investors have ramped up bets for rate cuts after a weak July jobs report last Friday, betting that the Fed will cut rates at its September meeting.
Markets are pricing in a 95.1% chance the Fed could issue a 25-basis-point rate cut at its next policy meeting, according to the CME FedWatch tool.
The return on cash and bonds is also "not great," Subramanian added, another reason investors could eventually plough cash back into the stock market.
Others have also touted the potential boost from record amounts of cash coming off the sidelines.
Tom Lee, the head of research at Fundstrat, said it is one reason he remains optimistic on equities in a note last month. Lee, known as permabull bull on Wall Street, said he still sees the S&P 500 reaching 6,600 by the end of the year, implying around 4% upside from current levels.
"The bull market has proven itself intact," he wrote, referring to the benchmark index's record-breaking rally in recent months.
Kristy Akullian, the head of iShares investment strategy in the Americas at BlackRock, also referenced the large amount of cash in money market funds recently.
"A portion of those funds could be poised to come off the sidelines if investors — like us — anticipate rate cuts without an accompanying recession," she wrote.
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