Money market assets are rising quickly…not necessarily a buy signal.
The table below shows the other months when the 12-month rate of change in money market assets first exceeded 25%.
It wasn’t much of a signal in 1989, with a gyrating market over the next year. It was a great buy signal in ’95 and ’98, with exceptional gains over the next 1-2 years.
Then came the next two signals. While the bear market had already started in 2001, the ramping up of assets in money markets by June of that year signaled only about the half-way mark of risk aversion. In 2007, investors were shoveling money into money markets well ahead of trouble in the major equity indexes, and losses over the next couple of years were massive.
That doesn’t tell us a whole lot about our current juncture. Two signals were excellent buys, two were excellent sells, and one led to extreme choppiness.
More than anything, what we can take away is that this is by no means an automatic contrary signal. It’s abnormal given the market context, and it has led to wildly diverging results. Beware assuming it is a buy signal.