Here's What a Rise in Cash-Like Investments Really Means

It has been a few weeks since the Silicon Valley Bank collapse. But investors are still feeling cautious, so they're looking for "safe havens" among the volatility.

Money-market funds are one such option. These funds invest in cash-like assets and can be converted to dollars quickly. And they just hit a milestone that suggests money is flowing into them right now.

This is often considered a bad sign for the near term. But I view this news differently...

Headline No. 1:

Money-market funds hit a record level of $5.1 trillion in assets under management ("AUM") as investors look for safety in cash.

McCall's Call: According to Bank of America analysts, more than $300 billion has flowed into money-market funds in the past four weeks. This is the fastest pace of inflows since 2020.

As you can see in the chart below, previous spikes in money-market-fund investments occurred during the great financial crisis in 2007 to 2009 and the COVID-19 crash in 2020.

Now, the second-largest bank failure in more than a decade has sent fear back to those heightened levels...

As I mentioned above, some investors consider high money-market fund AUM a bad thing – possibly even the first sign of a looming recession. But that's not what this chart is telling me.

Instead, I see two past spikes that were followed by strong periods in the market...

Money-market fund AUM peaked in 2009, at the same time stocks began a multiyear bull market. And when the indexes came roaring back after the COVID-19 bear market, asset growth in money-market funds flattened.

So I believe that large amounts of cash in money-market funds are a sign that stocks are getting ready to rally.

Folks are sitting on a lot of cash right now. And sooner or later, that cash has to be put back to work – just as we saw in 2009. Investors aren't paying money managers fees to invest their money in low-yielding funds.

That combined with the inevitability that stocks will eventually offer better reward-to-risk opportunities tells me that a portion of that $5.1 trillion will funnel back into U.S. stocks.

So the recent volatility doesn't scare me. Neither does the fact that so many investors are scared and parking their money in safe havens right now. The stock market is one of the greatest generators of wealth in history... and that hasn't changed a bit.

Headline No. 2:

About 80% of the U.S. workforce could be affected by artificial intelligence ("AI").

McCall's Call: A fear of AI has been ingrained in many of us since we were children. How many movies have been made about robots taking over the world? I'm not losing much sleep there. But the growth and popularity of automation has many workers questioning whether they'll soon lose their job to a machine.

I get it. And that's what makes this such a catchy headline.

But diving deeper reveals the truth behind it...

According to a study conducted by the University of Pennsylvania and OpenAI, about 80% of the country's workforce could see at least 10% of their tasks affected by AI. I consider that a positive as AI chatbots can help workers with their more menial tasks and improve productivity among employees.

That said, the study also found that 19% of workers could see at least 50% of their tasks taken over by AI. And that's where some concern lies. Unlike most studies that show that lower-paying jobs are at risk, this one says that AI is even more of a threat to higher-income jobs.

Think about my job in particular. I spend most of my day writing and doing research – two things that could be handled by an AI chatbot. Web designers, mathematicians, and even translators are facing similar concerns.

But there's no escaping it...

AI is already here. And as this new study proves, there's a lot of room left for it to grow.

This is a trend that can make opportunistic investors a lot of money in the future. So now is the time to start building a watch list – if you haven't already.

AI may be coming for my job. But if I can make enough money off its growth in the meantime, maybe I'll just retire early on a beach somewhere.

Here's to the future,

Matt McCall
Editor, Daily Insight
March 27, 2023

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