How $4.6 Trillion in Cash Can Pad Your Retirement Profits
“How can the market keep going up with so much bad news out there?”
That’s one of the biggest questions I’m hearing as I talk to friends and neighbors, listen to the talking heads on the financial news, and read the emails that your fellow readers are sending in. (By the way, I hope you’ll send me your questions by dropping me a line at AskZach@StPaulResearch.com)
Sometimes it just seems like the market doesn’t make sense.
That is, until you stop thinking that the market is directly tied to the economy, and you start thinking about the buying and selling decisions that investors are making.
The truth is, this market is extremely healthy!
And today I want to show you how one giant pile of cash will keep the market on stable footing — and give you a chance to continue building your retirement wealth.
What REALLY Drives the Stock Market Higher?
When it comes to the direction of the overall market, stocks are not actually driven by economic reports or company profits.
Sure, those things can help to influence the overall direction for stock prices.
But at the heart of the market’s swings are the individual buy and sell decisions that investors make.
Ultimately, this is what truly drives stock prices higher and lower.
And how do we know what these individual buy and sell orders are going to do?
I’m glad you asked!
One of the best ways to determine whether investors are going to buy (and push the market higher) or sell (and drive stock prices lower) is by looking at what level of cash these investors are holding.
If investors are holding a lot of cash, we can expect them to buy. That means the market should soon move higher.
On the other hand, if investors don’t have much cash in the bank, they won’t have as much firepower to buy stocks with. So we can expect any selling to drive stock prices lower.
Today, investors are holding a record amount of cash on the sidelines.
And that is a big part of why stocks are trading higher — and will continue to trade higher — despite all of the concerning news in our world today.
Here, let me show you…
A $4.6 Trillion Powder Keg
Take a look at the chart below…
This is the amount of money currently being held in money market accounts. And as you can see, we just hit a record level of $4.6 trillion… Well above the highest level ever seen.
Money market accounts are simply temporary places to park cash. For example, when you keep extra cash in your brokerage account (waiting for a good opportunity to invest it in stocks), most brokers automatically move this cash into a money market account.
Back when I was at the hedge fund, we used to call this money “dry powder.”
That’s because when you have a lot of dry powder, it only takes a small amount of good news to ignite an explosive rally!
And with so much money parked on the sidelines just waiting to be invested, we could see a huge surge from here that lasts quite some time!
Keep in mind, the last time we saw a record high in money market funds was 2008. This was following the financial crisis and ahead of the longest bull market periods our country has ever seen.
Could we be setting up for another strong run so quickly? I certainly wouldn’t bet against it!
Where is This Money Coming From?
When we look at an indicator like this, it is important to think about where the money market cash is coming from, and what could cause investors to put it back into stocks.
The easy answer is that this cash has come from the government!
With all of the stimulus programs that have been put into place over the last few months, consumers across the country are flush with cash! Savings levels have jumped sharply higher. Because not only have people been given more cash, but they’ve also had fewer places to spend that cash thanks to coronavirus lockdowns.
Corporations are also holding huge amounts of cash. We’ve talked about Apple’s recent $8 billion capital raise, and I’ve seen similar multi-billion dollar bond deals from other big corporations like Amazon.
What are these companies doing with their cash?
One of the best ways for companies like Apple and Amazon to put their cash to work is through buyout transactions.
These transactions happen when a large company buys all the available shares of a smaller company, taking the entire firm over in the process.
When these deals occur, investors in the companies getting bought out typically walk away with a windfall overnight profit. And this record $4.6 trillion balance in money market funds will undoubtedly fuel many more of these buyout transactions over the weeks and months to come!
You see, as lockdowns restrictions are eased, as we make more medical progress in treating and preventing coronavirus, and as the U.S. economy gets back on its feet, investors are going to become more confident.
They’ll take the money they’ve been given by the government (or the money they’ve saved during the coronavirus crisis) and they’ll put it to work in the market.
Large corporations will use their cash to buy out smaller competitors and expand their overall business. And all of these buy orders will naturally keep this market heading in the right direction.
Believe it or not, despite all of the negative headlines, I’m still very bullish on our economy and on our market. And I want to make sure you participate in the best opportunities as this $4.6 trillion gets put to work!
So make sure you’re keeping up with our opportunities each day as we uncover the best opportunities to help fund your rich retirement!
Here’s to growing and protecting your wealth!