The rapid increase in interest rates over the last 18 months has changed investor sentiment about “cash” investments. Short-term cash investments such as money market mutual funds and Treasury bills now pay around 5%. Meanwhile, over the last two years, the overall stock market has gone basically nowhere, with a lot of volatility along the way.
Stock prices start to rally higher, and just as investors feel confident, prices then turn down. The major market indexes have dropped by about 10% in the three months since the end of July.
As a result, investors have put a massive amount of new money into money market mutual funds instead of into stocks.
This move will, at some point, be the fuel for the next stock market bull market…
This post originally appeared at Investors Alley.