Money markets levels have normalized which may make stock gains harder
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The ratio, as outlined in the chart above, looks at the level of un-invested money market funds to the market cap of the S&P 500 in an annual time series from 1992. When we first introduced this analysis at the beginning of 2013, money fund level represented 21% of the value of the S&P, still above the median value over the past 21 years. A high ratio for this metric means that there is a lot of money still on the sidelines that could come into stocks. A lower value could mean that there is less incremental money to be invested into stocks; this could represent muted gains or declines for equities going forward.
In our most updated tally of this analysis through the end of February 2013, now including the almost 5% gain year-to-date in the S&P, money market levels are now below their 22 year median value. At 17% of the value of the S&P, money funds are below the median of 18% in the time series, and also below the average long-term level of 21%. Whilst money fund levels are not near the lows of 13% of the value of the S&P 500 seen in 1999 (which was a signal to sell stocks ahead of the Bear market of 2000-2002), we are pointing out that incremental un-invested money market levels are now below median levels which may mean muted gains or slight declines for stocks in the intermediate term. Thus, leading exchange traded funds that proxy the stock market may not perform as well as they have done in the recent run up in stocks; this includes the iShares Russell 3000 Stock Index exchange traded fund (IWV), the Vanguard Total Stock Market exchange traded fund (VTI), and the iShares Core S&P 500 exchange traded fund (IVV).