- A report from Goldman Sachs suggests that investors now see viable alternatives to equities investments, including money market mutual funds and bond funds.
- The bank estimates that U.S. households will sell $750 billion in equities during the year, moving money to less risky assets.
- Increasing interest rates as the Fed moves to combat inflation are likely contributing to this change in investor priorities.
The era of TINA ("there are no alternatives to stocks") is over, and the TARA ("there are reasonable alternatives") era has begun, according to a report from Goldman Sachs.
The bank estimated that U.S. households will sell $750 billion in equities this year, although the amount could jump to as much as $1.1 trillion.
Goldman said that instead, investors are moving that money into less risky assets. The report noted that, so far this year, $51 billion has flowed out of U.S. equity mutual funds and exchange-traded funds (ETFs), while $282 billion has moved into U.S. money market funds and $137 billion into U.S. bond funds.
Interest Rate Impact
One likely reason for the change in thinking is the jump in interest rates as the Federal Reserve moved to try to quell inflation. Goldman indicated that, from the start of 2020 to mid-year 2022, households were net buyers of $1.7 trillion in equities. However, as the Fed started its aggressive monetary tightening, a "significant slowing began," and the third quarter marked the first quarter since 2018 that households became net sellers of stocks.
With households pulling back, the bank said foreign investors and corporations will step in, and they are expected to purchase $550 billion and $350 billion in U.S. equities this year, respectively.