The amount of cash held by investors in money market accounts reached a record level in August, even as looming interest rate cuts would lower their returns. Money market account assets hit $6.24 trillion this month, according to data from the Investment Company Institute as of Aug. 21, despite markets becoming increasingly confident that the Federal Reserve will cut interest rates at its Sept. 17-18 policy meeting.
If the economy shows signs of slowing more than anticipated, or conditions in the labor market deteriorate, it could spur the Fed to move forward with bigger rate cuts. Such a scenario could raise the appeal of financial safe havens like money markets despite the falling yields. Conversely, if the stock market avoids a sell-off over concerns about the economy's health, the higher returns from stocks and bonds could prompt investors to move cash out of money markets.
Brian Nick, head of portfolio strategy at NewEdge Wealth, said in a report by Reuters that he hopes to persuade clients to diversify their portfolios if yields fall as expected in coming months. "You have to convince them there's a reason to move away from money markets but also a reason why some other asset offers a better opportunity," he said. "That will be the approach that eventually wins out.
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