Money continues to flow out of bonds and into money market accounts. Most people do not even know that this is happening, let alone why. As bond yields rise, it means rates of all sorts of things rise including rates paid out to money market accounts.
The chart below shows money coming out of assets that are negatively impacted by higher rates, like Treasury bonds, Municipal bonds, and equity funds that are fixed income funds tied to bonds.
Notice that money really started flowing into money market funds at the start of May when the Federal Reserve first hinted that stimulus tapering was coming. Compare the chart above with the 10 year bond price chart below.
In a rising rates environment, savers will benefit. The rates on certificates of deposit, savings accounts, and money market accounts will all go up.
So far the flow of money into money markets seems to be directly proportional to the drop in bond prices. This is not necessarily a bad thing. It means that most of the money going into money market funds is coming out of bonds and not stocks. If we start to see money coming out of stocks and going into money markets, then we might have something to worry about.
Folks, you know I’m no cheerleader for the market. I don’t have any vested interested to hold a certain opinion either.
The way I see the Advanced Retail Sales number that was just released this morning is that it’s not bad, provided it’s true and not revised down.
I explained why Retail sales are such an important barometer to watch on the health of the economy here: The Harbinger: The Sector That Holds the Future of the U.S. Economy
The Advance Retail Sales Report released this morning shows that sales in August were 0.2% month-over-month. That’s not bad. While it may be a decline from July’s 0.4% (July was revised up from 0.2% to 0.4%), the longer term trend is still a thing of beauty.
I have nothing bad to say about that chart. Looks good and it tells us that despite the bad earnings season, lack of meaningful job growth, and the drop in U.S. GDP, consumer spending and retail sales continue to march upward for now.