The equity markets may be poised for another leg higher, and one potential catalyst isn’t coming from earnings or macro data—it’s the $7 trillion parked in money market funds.
According to Bank of America and other Wall Street strategists, this massive pile of cash represents dry powder that could rotate into equities once conditions align—most notably, if the Federal Reserve begins a more sustained rate-cutting cycle. This level of liquidity, largely sitting in U.S. Treasurys, money market mutual funds, and other short-duration instruments, could represent meaningful upside for client portfolios positioned to capture the move.
Savita Subramanian, head of U.S. equity and quantitative strategy at Bank of America, emphasized the scale of this potential inflow during a recent CNBC interview. “We’ve still got a lot of cash, still got a lot of fixed income on the plate,” she said. Her team believes that once the Fed resumes cutting rates in earnest, we may see significant capital shift back into risk assets—especially equities.
The Fed cut rates twice in late 2024 but has since paused amid ongoing inflation concerns tied to global tariffs. However, after a softer-than-expected July jobs report, market expectations for additional easing have increased sharply. Futures markets are now pricing in a 95.1% chance of a 25-basis-point cut at the Fed’s September meeting, according to CME’s FedWatch tool.
For advisors, this environment creates a strategic opening. The return profile on cash and short-duration bonds is no longer compelling, and client portfolios that have remained overly defensive may be due for rebalancing. Subramanian pointed to this relative return disparity as another reason money may begin flowing back into equities.
This isn’t just theoretical positioning. Fundstrat’s Tom Lee, long known for his bullish stance, echoed this sentiment in a recent research note, highlighting sidelined cash as a key bullish driver. He reiterated his S&P 500 year-end target of 6,600, reflecting roughly 4% upside from current levels. “The bull market has proven itself intact,” Lee wrote, referencing the index’s consistent leadership in recent months.
BlackRock is also flagging this capital as a potential source of equity demand. Kristy Akullian, head of iShares investment strategy in the Americas, noted the scale of assets in money markets and the likelihood that some portion could move into equities under the right conditions. “A portion of those funds could be poised to come off the sidelines if investors—like us—anticipate rate cuts without an accompanying recession,” she wrote.
For wealth advisors and RIAs, the implications are clear: Reassessing client allocations in light of market momentum and rate expectations may be prudent. While many clients sought refuge in cash and ultra-short fixed income over the past two years, the rationale for staying sidelined weakens as equities continue to hit new highs and rate cuts loom.
Portfolio positioning conversations should now include not just a macro outlook, but also an analysis of opportunity cost. If rate cuts arrive without a corresponding economic downturn—and that’s the consensus among several strategists—equities could remain the most attractive asset class through year-end.
With the potential for a liquidity-driven melt-up, clients who are still overallocated to cash may risk missing out. Strategically reallocating even a portion of those reserves into well-diversified equity strategies could enhance total return potential while staying aligned with long-term objectives.
As always, advisors should weigh risk tolerance, time horizon, and tax considerations. But with $7 trillion in cash waiting on the sidelines, the path of least resistance for the market may remain upward—especially if that capital starts to move.
