Now the absolute value of money market funds is not as significant as the value of these money funds compared to the value of stocks, to scale exactly how much support indices actually have from un-invested cash. Starting 2013, money markets funds total 21% of the value of the S&P 500 (we simply look at the dollar value of un-invested money funds versus the dollar value of all the stocks in the S&P), still above the 20 year median of 18% and much better than the low of 13% in 1999. This starting level for 2013 could mean continued incremental gains for stocks in the upcoming year. Now while money fund levels continue to move off of record levels since 2008 (where the financial crisis created massive risk aversion and investors selling stocks and bonds and parking funds in money markets) which has fueled the 57% rise in the S&P 500, current levels are still healthy enough to warrant continued gains for stocks in 2013.
To capture potential incremental gains in the upcoming year, investors can purchase StateStreet’s S&P 500 exchange traded fund the SPY, which holds all 500 constituents of the S&P 500 index. The stocks of the asset management industry would also benefit as new funds could come into stock and bond mutual funds. Thus the stocks of Blackrock (BLK), Invesco (IVZ), and T Rowe Price (TROW) would all benefit from money continuing to move off of the sidelines and into securities markets.
© 2013 Market Realist, Inc.