Below is a chart and brief excerpt from today’s Market Situation Report written by Tier 1 Alpha. If you’re interested in learning more about the Hedgeye-Tier 1 Alpha partnership, there’s more information here.

Firstly, happy Veterans Day to those who have served and their families.

Today's bonus chart highlights the swift influx into money market accounts over the past two years. With a 5% annual yield, a $250k investment in such an account can generate $1041 monthly. This relatively low-risk return meets many investment goals and prompts reflection on historical events that have reshaped investor behavior. Could this be another pivotal moment?

Why Cash is King Again - market1

JP Morgan's analysis indicates that 90% of market transactions now bypass fundamental calculations. ProfPlum notes key events influencing flow behaviors:

  1. 2006 Pension Protection Act: Initiated under the Bush administration, this Act transitioned from an opt-in to an opt-out system for 401k plans, popularizing qualified default investments like 50/50 balanced funds and markedly increasing participation in retirement plans.
  2. 2012 Vanguard Lobbying: Influenced by Vanguard, default investment vehicles in qualified plans shifted primarily to target date funds, which allocate and rebalance based on retirement timelines. Now, 85 cents of every retirement dollar flows into these funds.
  3. 2019 Tax Cut: This one-time measure allowed repatriation of corporate profits from abroad at a reduced tax rate of 15.5% instead of 35%, leading to significant capital inflows like Apple's $250 billion, predominantly used for stock buybacks. This event marked a notable divergence between the cap-weighted S&P 500 and its equal-weight counterpart, with the 'Magnificent 7' significantly distorting the markets.

Such historical moments are landmarks in investment behavior evolution. Similarly, the current appeal of low-risk alternatives to equities might fundamentally alter investment approaches. Likely a 2024 question.

Learn more about the Market Situation Report written by Tier 1 Alpha.


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