Before The Bell: S&P 500 Up, Money Flows Into Bonds (INDEXSP: .INX)

S&P 500 futures are 14-15 points higher this morning Fed Chairman Jerome Powell is expected to reiterate his call for using all the tools at the central bank’s disposal to support economic growth. Also, the rate of new daily coronavirus infections continues to decline in the US, falling below 20,000 after a rise in California. President Donald Trump also said he would ask Congress to pass a stimulus package related to the coronavirus measure.

A lot of money is coming off sidelines and will bring further profits to the market because of Coronavirus. This will likely lead to a BULL RUN, but not necessarily for equities.

However, every transaction needs a buyer and a seller, and everyone must be on the same side of the idea. If you leave the other side, a lot of money remains, but not much in the form of real estate or other assets.

What we see today is still a rush for safety and security.

The Coronavirus and lockdown crippled economies everywhere because consumer spending stopped. Also, many people sold stocks and bonds and sought the safety of cash instead.

It is difficult to turn on a TV channel or read a news website without hearing that the reboot is destined to stutter. So investors bought into the media fear and went info cash, missing out on much of the recovery.

Where is the money going… BONDS. Investment in corporate bonds and government bonds recorded inflows of $7.5 billion, and corporate bond mutual funds recorded inflows of about $5.5 billion. A record of $22.7 billion flowed into US government bonds in the first quarter, compared with $18.2 billion in the previous quarter. Even junk bond funds recorded an inflow of $8.5 billion in the first quarter, up from $6.2 billion in the last quarter.

Some money is flowing into mutual funds, but not directly into equities. We are seeing investments in money market funds are safe because they are mostly cash, and when the market recovers, safe money does not help.

According to the Federal Reserve Bank of New York, about $1.2 trillion has been poured into money markets since the beginning of March.

Bottomline

Although the money supply was not part of the current rally, Bank of America reported that global fund managers “cash holdings account for about 5.7% of assets. Rember, most of the funds have charters (bylaws) that require them to be 95% invested; they can’t sit in high levels of cash forever.