The Omicron variant and inflation could still be keeping prospective stock investors on the sidelines based on the amount of cash in money market funds.
Investors transferred more than $43 billion into money market funds within the past week, which brings the total amount of cash raised in the past seven weeks to $226 billion, according to a CNBC report. 2021 was supposed to be the year of an equities comeback, and in terms of price gains, it has been — nonetheless, there are still a number of investors waiting on the sidelines.
Inflation fears could be keeping investors away now that the Federal Reserve has acknowledged that inflation is not transitory. The Fed is slated to produce three rate hikes in 2022 and has already started tapering off its bond purchases as part of easing its stimulus measures.
Then, of course, the Omicron variant produced a post-Thanksgiving route that saw the Dow Jones Industrial Average plunge by over 900 points. Just when it looked like it was safe to go back into the equities waters, something held investors back.
The good news is that it may not be this way for long. Eventually, the risk dial will be turned up higher and the stock market should see fresh inflows of cash, according to market experts.
“My core thesis is that money will come out of negative real yielding cash and out of bonds aggressively and early in 2022 following December board room asset allocation meetings,” said Scott Rubner, analyst at Goldman Sachs’ global markets division.
“Every private wealth advisor in the world is conducting ‘year-end allocation review’ meetings right now. The feedback will be largely that investors hold too much cash with rising inflation,” Rubner said.
Thrice the Gains of the S&P 500
Investors heading into stocks from cash should give the S&P 500 a boost. That should open up the pathway for traders to give the Direxion Daily S&P 500® Bull 3X Shares ETF (SPXL) a closer look.
While it’s not a buy-and-hold ETF, traders getting in and out have been riding the upward wave of momentum in the S&P 500. SPXL itself has produced stellar gains, churning out a year-to-date gain of over 80% thanks to its triple exposure to the S&P 500.
Of course, with 300% exposure, only savvy and educated traders should apply. While traders can maximize their gains, the same comes with losses that can be amplified if there’s a sharp downturn.
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