Do Stocks Face a Wall of Money — Even After Big Gains?

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Stocks closed at another record on Wednesday after inflation slowed more than expected. Today we’ll consider some key forces driving the rally. Are they exhausted, or could some positives remain in play?

Inflation Hits Zero

The consumer price index was unchanged in May versus April. It was the lowest reading since last July and 0.1 percentage point less than expected. A drop in energy prices helped cause the improvement. However, core inflation (which excludes food and energy) was also below forecasts and its annual increase of 3.4 percent was the lowest in more than three years.

Apple Embraces AI

Apple (AAPL) also impressed Wall Street by announcing AI features at its World Wide Developer Conference (WWDC). Especially interesting was the potential for Siri to act as an “agent” by executing tasks for users. Analysts at firms like D.A. Davidson, TR International and Wedbush see the functionality popularizing AI across AAPL’s large user base. That could potentially boost demand for chips and cloud computing.

Apple (AAPL), daily chart, with select patterns and indicators.

The news was also important for a stock that had been left for dead. AAPL lagged the broader market in early 2024 as other major technology companies like Microsoft (MSFT) and Nvidia (NVDA) rode the AI wave to record highs. The iPhone maker had been trapped below its peaks from December. But it broke out following the announcement and registered its biggest 2-day gain since November 2022, according to TradeStation data.

Microsoft (MSFT), Alphabet (GOOGL) and Nvidia (NVDA) — the three other companies above $2 trillion in market cap — also hit new record highs yesterday.

‘Wall of Money’?

Another potentially important force has quietly developed: cash “on the sidelines.” Federal Reserve data shows money-market balances up 90 percent between May 2022 and April 2024. It suggests investors have kept funds in low-risk short-term reserves.

That “wall of money” could start entering the stock market next month, Goldman Sachs managing director Scott Rubner wrote last week. His analysis was based on season patterns for passive investors and the potential for increased retail participation during the summer.

Retail money market funds since 2009, according to St. Louis Federal Reserve data.

Previous peaks in cash balances were followed by gains in the broader market. The most recent example was May 2020 during the coronavirus pandemic. Similar turns also occurred in:

  • March 2009, following the subprime crisis
  • January 2013, during a debt-ceiling showdown
  • January 2016, during a recession scare

Interestingly, total money-market funds have inched slightly lower since April. Is a similar process starting now?

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David Russell is Global Head of Market Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.