BlackRock Awaits $7 Trillion Cash Rotation

At the Reuters Next conference in New York, Wall Street executives expressed confidence that the massive US$7-trillion stash parked in cash investments will be moved in 2025. The so-called conservative and safe cash investments were crushed by gold’s gains by more than 7X. Wall Street executives viewed the amount of cash as astonishing and only saw it becoming a worse idea with the coming interest rate cuts.

Despite these predictions, reality has so far defied expectations. According to Reuters, data from Crane Data shows that money market holdings grew by approximately $824 billion this year, suggesting that even as the Federal Reserve began cutting interest rates, investors preferred to keep their cash in low-risk vehicles instead of moving into stocks or bonds. This seems counterintuitive and they are betting that the trend will break.

Money market fund investors have apparently remained content with yields hovering around 4%. While this may look good compared to recent years, just this year the S&P 500 has risen about 27%, and gold has been even more dominant, rising 30%. As of December 5, cash held in money market funds stood at US$7.124 trillion, according to Crane Data.

Some industry leaders believe that if rate cuts lead to lower money market yields, more of this cash may be reallocated into stocks or bonds. The potential opportunity cost of staying in cash is increasing as yields in other investments grow more attractive. Rob Goldstein, BlackRock's Chief Operating Officer, noted at Reuters Next, ‘The sheer amount of cash in bank deposits and money markets right now is astonishing. We anticipate that money will flow back into public and private capital markets.’

Market data indicates expectations for 85 basis points of rate cuts next year. Recent U.S. inflation data has also helped to ‘bake in’ this number.

What Are Investors Worried About

We recently covered that Warren Buffet has been hoarding US$325 billion in cash and that Jeff Bezos sold US$1.25 billion in Amazon stocks. Could it be that many investors are simply waiting for a large stock market correction/crash? This would be one of the only sensible explanations for why investors opt for much lower-yielding investments. Timing market tops and bottoms is a seemingly impossible task, so might certain investors be waiting on the sidelines for something to break?

If a calamity is the expectation, those who opted for gold and followed the central banks’ lead have appeared to come out on top. They have been able to ride a 30% gain and also hedge against risk markets. If BlackRock and the rest of Wall Street are correct, 2025 could see an even larger amount of capital rotating into other markets. If they are unsure what to invest in, and it is stock market fear they are trying to avoid, there may be a very easy answer.