The stock market is expected to see a significant boost next year, thanks to a record $6 trillion and a growing amount of cash in money market funds, according to Fundstrat's technical strategist. Mark Newton.
What happened: Newton thinks funds could start deploying cash in the new year once rebalancing occurs, as reported by Business Insider.
If the Federal Reserve begins to cut interest rates next year, this would be even more true since the risk-free interest rate on money market funds will also fall. This would make holding cash in money market funds less attractive compared to placing it in the stock market.
This year there has been a significant increase in money market fund assets, driven by attractive interest rates of 5%. Total cash on margin recently hit a record $5.88 trillion, up 24% from $4.73 trillion last year, the report notes.
Because it is important: Newton believes that minor setbacks in the coming weeks or months should be seen as buying opportunities, given the global liquidity environment and the large amount of additional cash. Once the funds start investing cash next year, it will further fuel the market rally, Newton says.
The Federal Reserve is widely expected to cut interest rates at least five times next year.
Despite all-time highs for the Dow Jones Industrial Average and Nasdaq 100, Newton believes the growing amount of cash shows that stock market optimism is not excessive.
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