Cash on the sidelines!

The below graph shows the funds in money market. From the below graph it seems $3 T is a steady rate, which climbed to almost $6 T. There is a lot of money moving in to MM funds chasing higher yields.

I am not sure how much of this will find its way back to stock market, if and when the yields start falling. However, in any sharp sell-off this could act as a PUT.

The below graph is for the SP500 annual returns. In the last 96 years only 30 times SPY declined ( so it pays to be optimistic!!) and out of that only 10 times SPY decline is between 0% to 10%. In other words, when the market declines the chances are it is going to be higher than 10%; However, only 6 times the decline exceeded, and in the last 50 years only 3 times, they are 1974, 2002, and 2008. 2022 came very close (-19.44%) hence deserves honorable mention

I am planning to sell $300, $350 SPY Jan 25 puts. You may want to keep in mind, 2024 is election year, so anytime after May, till the election there is going to be lot of uncertainty, volatility. (Remember on the night of Trump’s victory futures went down 5%, great buying opportunity in retrospect) That will offer more opportunity to sell some deep out of the money puts.

For individual names you need to have a fundamental view. With Index, you can do these sort of trades mechanically.

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In 34 of the past 95 years, the U.S. stock market has finished the year with gains of 20% or more.

The market can keep going up, here are some past performance after 20% gains…

There are couple of other articles I read that talks about how cash is a long-term loser. Yeap 5% is good, but it loses to stocks in the long run and some folks are addicted to cash and keep higher cash balances ( certainly I am guilty of it, I carry very unhealthy amount of cash, but OTOH I am at peace with the returns I make ), etc.

Bottom Line: There are pundits, who are saying, there is lot of cash on the sideline, money market, etc. If the market continues to go up, they can come into equities, chasing the performance, and if the market goes down, then the cash will come in as dip buyer. Sort of win-win. I don’t know what exactly will happen. I will be very conservative on my put selling and for now, going to increase my overall allocation to equities to 65%, have some bonds and still keep 25% cash. What future holds we don’t know, but I don’t have to chase performance and YMMV.

In the last 5 days thee is $40 B net inflows in SPY!!! Unprecedented money flow.