Flows into money markets and away from equities

Troy Bombardia
2020-04-04
Investors are running away from equities towards money markets.

Investors have rushed into money markets at a historic pace over the past few weeks in a mad dash to cash. Flows into money market funds have soared. Total assets in money market funds have increased more than 40% year-over-year, which is one of the largest increases ever, matched only by early-2008:

Back then the S&P rallied over the next few months before stocks really collapsed later in 2008. Will this time be the same? Hard to say, especially with a sample size of n=1.

Meanwhile, the recent stock market crash saw investors exiting emerging markets at one of the fastest paces in history. The following chart illustrates weekly estimated cash flows for emerging market funds:

When so many investors rushed for the exits all at once, the MSCI Emerging Markets Index rallied over the next 3 months:

We can relax the parameters to increase the sample size, and the result is still the same. Emerging markets usually rallied over the next 3 months, with the exception of the October 2008 market crash. But the October 2008 cases weren't all bad news -  stocks formed a major basing pattern for several months before surging over the next year.

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