In the face of a potential Federal Reserve rate cut in September, a strategist from Goldman Sachs has cast doubt on the likelihood of a resulting stock market surge.
Skepticism Grows On Money Funds Shifting To Equities
Investors are keenly awaiting Federal Reserve Chair Jerome Powell‘s speech this Friday at the central bank’s summer Jackson Hole, Wyo., summit. The anticipation is that Powell will indicate rate cuts in September. However, Tony Pasquariello, head of hedge-fund strategy at Goldman Sachs, has expressed skepticism about a subsequent flood of cash into stocks from money-market funds, according to MarketWatch report.
The hedge-fund strategist doubts that the $7.186 trillion currently in U.S. money-market funds, as reported by the Investment Company Institute, will be redirected to the stock market following a rate cut. He stated, “I think this suggests there’s not some unusually large wall of money that is soon to be allocated to the stock market (or elsewhere).”
Pasquariello also noted that there was no significant outflow from money-market funds in previous cycles when the Fed lowered its policy rate. Even after the 2007-’08 global financial crisis, money-market assets continued to grow despite ultralow rates.
Yardeni, Ackman See Rate Cut Fueling Stock Market FOMO
The potential rate cut in September has been a topic of interest, with some experts having different views than Pasquariello.
Ed Yardeni, president of Yardeni Research, suggested that it could supercharge an already euphoric U.S. stock market, leading to a FOMO-fueled rally. Furthermore, in July, billionaire Bill Ackman expressed a bullish view as money market funds hit a record $7.4 trillion, hinting that any rate cuts could direct these funds into the equity markets.
Meanwhile, the U.S. credit rating was reaffirmed by S&P Global, largely due to anticipated tariff revenue expected to balance the fiscal impact of President Donald Trump‘s latest tax-cut and spending bill. However, the rating agency cautioned that Fed independence is crucial for long-term outlook.
Price Action: Schwab Government Money Market ETF SGVT and iShares Prime Money Market ETF PMMF climbed 0.36% and 0.36%, year-to-date, as per data from Benzinga Pro.
The SPDR S&P 500 ETF Trust SPY and Invesco QQQ Trust ETF QQQ, which track the S&P 500 index and Nasdaq 100 index, respectively, were trading lower on Tuesday. The SPY was down 0.014% at $643.21, while the QQQ declined 0.085% to $576.62, according to Benzinga Pro data.
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