desk
Share
News Topical, Digital Desk : The markets are hopeful of a new rally due to the reduction in rates by the central banks. Actually, the return on deposits with banks will decrease due to the reduction in rates. A part of the markets hopes that some part of this money may come to the market, which may start a new boom. Currently, markets around the world are eyeing the announcement of the US Federal Reserve. Actually, there is no shortage of cash in the US economy. However, this cash is not in the pockets of the people but in the money market. Due to the increased interest rates of the Federal Reserve, this amount has also been getting attractive returns for the last one year. In such a situation, this amount has remained the same.
Eye on cash worth about 8 trillion dollars
a record amount of 7.6 trillion dollars is deposited in money market funds. The size of this amount can be gauged from the fact that the total market cap of all the companies listed on BSE is only 5.2 trillion dollars. Now some experts are hoping that when the Federal Reserve is preparing to reduce interest rates, some part of this treasury can go towards other options in search of better returns, which also includes equity. If this amount comes out of the money market, then it can reach markets around the world in search of better return opportunities. However, there are many arguments in favor and against this theory. Possibility of rate cut increased Based on the new signals received from the US economy, analysts believe that the Fed will not delay now and a rate cut of at least 25 basis points is certain in the next meeting. In a CNBC report, Investment Company Institute Chief Economist Shelley Antoniewicz said that the payroll data has further strengthened the case for rate cut. However, how much and how often these cuts will happen will be decided by economic data. According to him, as rates fall, some part of the approximately $7 trillion dollars kept in money market funds may gradually shift to more risky investments like shares and bonds. Will cash really come out? However, many other experts doubt that cash will shift to new assets. Peter Crane, president of Crane Data, says that if we look at history, money from money market funds decreases only when interest rates reach zero. He said that interest rates matter, but not as much as people think. This amount is not going anywhere. According to him, currently money market fund investors are getting an average annual return of 4.3%. Even if rates fall to 3%, most investors will still stay there because they barely get 0.5% interest on deposits in banks. It is possible to shift some part to equity. Todd Son, technical strategist at Strategies Asset Management, says that if rates come close to 3%, the post-tax returns will not be attractive. In such a situation, investors can consider investing in long-term Treasury ETFs, bonds or equity markets. However, he also clearly said that investors who have already invested a lot in other assets may avoid further diversification. However, this amount is so large that if even a small part shifts, it can have a big impact on many markets.
Read More: Infosys share buyback: Will you get Rs 1,800 or just Rs 1,620? The whole game is hidden in taxes!
--Advertisement--
