What Record Money Market Balances Say About Investors’ Views of Stocks

The amount of money sitting in money market funds hit a record $7 trillion in the first half of 2025, continuing a years-long surge of inflows into these short-term, low-risk investment vehicles. So what does that say about investors’ attitudes toward stocks?

Usually, investors dump cash (a money market fund is effectively a cash equivalent) and jump back into equities when the Federal Reserve’s benchmark interest rate is tracking lower. These days the situation is a bit more complicated: President Donald Trump’s tariffs have injected a lot of uncertainty into equity markets and the economic outlook.

As a result, the Fed has hit “pause” on its rate cuts. That and the fact that money market rates remain attractive have made any decision to take a wait-and-see stance toward equities a lot easier.

What Are Money Market Funds?

Money market funds pool investors’ money and invest it in short-term, low-risk debt securities like Treasury bills, commercial paper, and certificates of deposit. They are designed to provide better returns than a checking or savings account without adding much risk or reducing liquidity.

These funds pay out more when interest rates are high. People and companies often use them as a short-term safe haven while still earning a modest return.

Money Pours Into Money Market Funds

To understand why money is pouring into these funds, we first need to consider the rates the funds have been offering. Since late 2022, they’ve been at the highest level in many years, and as of May 2025 they remained around 4%, much higher than the rates seen from 2007 through 2022.

For example, the 3-month Treasury Bill, commonly used as a proxy for money market rates, averaged 0.51% from 2010 through 2021, and sat at 0.02% as of May 2021. It topped 5% in 2023-2024 as the Fed fought off inflation with aggressive rate hikes. Fed rate cuts have pushed it down to around 4%—but even that is a good return for what is essentially a risk-free investment—one many investors would have jumped at over the previous two and a half decades.

Stock Market Caution

The S&P 500 has historically returned about 10% annually before accounting for inflation. That’s more than double what the best money market funds currently offer. So clearly, many investors have decided that, at least for the short term, they are happier playing it safe than chasing higher returns with added risk.

Among the factors at play, many were created or exacerbated by Trump’s tariffs: the risk of a recession, including one with higher, tariff-driven inflation; possible long-term trade wars; and high equity valuations after an enormous run-up over the previous two years. (Consider that just three days after Trump’s so-called Liberation Day tariffs announcement, the S&P 500 at one point traded 15% lower than the closing price reached the day before the announcement.)

“When investor nervousness and volatility are high in the markets, money market funds tend to become more popular,” said Björn Jesch, former global chief investment officer of European asset manager DWS.

The Bottom Line

Despite recent interest rate cuts, money is pouring into money market funds. That is at least partly because they are offering relatively high returns. But it also implies that investors are cautious about the stock market. It seems many prefer to play it safe and preserve capital rather than take on more risk in search of higher returns. In other words, they believe the risks of equities currently outweigh the rewards.