Next week is critical for the stock market as investors brace for CPI data and a Federal Reserve meeting.
Fundstrat’s Tom Lee said a low inflation reading could boost stocks as it would bolster a Fed pause in interest rate hikes.
“Our view remains that inflation is tracking lower than consensus,” Lee said.
Next week is one of the most critical weeks for the stock market this year as investors brace for a Federal Reserve interest rate decision that could bring a pause in rate hikes and new CPI inflation data.
Fundstrat’s head of Research Tom Lee said that as stocks enters a new bull regime, the market could get jolted by volatility depending on how the new inflation data shakes out and how the Fed reacts to that data at its policy meeting on June 13-14.
With market consensus expecting the core month-over-month inflation gauge to be 0.4% for the month of May, investors would be surprised if inflation came in closer to 0.3%. That would be a positive surprise because it would bolster the Fed’s potential decision to pause interest rate hikes this month and in July.
People are flocking to money markets to protect their money. Here are the 8 accounts currently offering the highest yields.
SVB’s failure raised fears about the safety of deposits, triggering an outflow out of smaller banks.
Money-market funds and accounts look attractive thanks to their higher yields, given the Fed’s aggressive rate hikes.
These are the eight highest-yielding money-market accounts right now, according to Bankrate data.
The collapse of Silicon Valley Bank, Silvergate, Signature Bank, and Credit Suisse this month has prompted investors to pull money from smaller, more vulnerable lenders and move it to safer places that also offer better returns.
This has prominently included money-market funds, which have seen yields juiced by the same rate hikes that crippled SVB’s loan portfolio and sent people scrambling out of less established banks. With safer investments also offering better returns, the shift has been an easy decision for depositors.
Since the start of March, $286 billion has flowed into money-market funds, on pace for the biggest month since the depths of COVID, according to data compiled by EPFR and published by the Financial Times.
It’s a shift that started back in early 2022, when the Federal Reserve started its ongoing path of rate increases. Since then, people have pulled $1 trillion from vulnerable banks and put them into money market funds and bigger institutions, JPMorgan data shows. Of that amount, half was reallocated after the collapse of SVB.
“Fed rate hikes have been increasing the yield advantage of Government Money Market Funds, given the bulk of their investments are in Fed’s reverse repos and Tbills, both of which follow the Fed policy rate closely,” JPMorgan strategists wrote in a recent note.
While money-market funds aren’t guaranteed, they do invest in the safest and most liquid instruments, JPMorgan strategists said. That, combined with the increasingly attractive yields, makes them enticing for investors in the current environment.
Closely related to money-market funds are similar accounts offered by banks. They’re actually even safer, offering FDIC insurance up to $250,000 per depositor. For an everyday person looking to follow the trend towards money markets, accounts may be the better option, even if funds sometimes yield more.
Here are the money-market accounts offering the highest yields as of Friday, March 24, according to Bankrate.
1. UFB Direct, 5.02%
The online-only UFB Direct only offers savings and money market accounts for deposit accounts, per Bankrate.
It has check-writing privileges and ATM access, but you have to pay a $10 monthly fee if you keep less than $5,000 in the account.
2. CFG Community Bank, 4.80%
The Maryland-based community bank requires $1,000 to open, and a $1,000 minimum balance requirement to avoid a $10 monthly fee.
Bankrate points out CFG’s savings account annual percentage yield is lower than the national average, and checking accounts can only be opened in person in Maryland.
3. Sallie Mae, 4.05%
Bankrate notes that there are no monthly maintenance fees to keep a money market account with Sallie Mae. It also features free transfers but doesn’t include checking accounts, according to Sallie Mae’s website.
This is also a featured offer on Bankrate’s site, meaning it is sponsored.
Additionally, there are no maintenance fees or overdraft fees, and Ally reimburses up to $10 a month for fees charged on other ATMs.
5. First Internet Bank of Indiana: 3.56%
The APY is competitive, though account holders must maintain a $4,000 balance to avoid a $5 monthly fee, Bankrate says. Check writing is not available with this account.
It requires $100 to open an account, and account holders get up to $10 of monthly ATM surcharges refunded.
6. Discover Bank: 3.50%
Bankrate notes that customers will need to deposit $2,500 to open Discover’s money market account, which doesn’t have a monthly service fee.
It provides a debit card and free checks, and customers who keep $100,000 or more will earn a slightly higher APY.
7. US Bank: 3.50%
US Bank’s money market account requires a $10,000 minimum balance to avoid the $10 monthly fee, and this option offers check writing, Bankrate says about the sponsored offer.
Customers can also earn extra savings when they open a US Bank Elite Money Market Account.
8. Northpointe Bank: 3.25%
The Grand Rapids, Michigan-based bank offers attractive rates but only if a deposit of at least $2,500 is maintained in the account, according to Bankrate.
To earn the highest yield, at least $5,000 is required in the account, and it does not offer check-writing privileges. Bankrate also adds that an extra transaction fee of $15 per item applies when the limit of six monthly transactions is surpassed.
On accounts with balances below $2,500, no interest is earned.
9/9 SLIDES
“If May Core CPI [is less than] 0.4%, then we see these odds [of interest rate hikes] dropping to zero for each month,” Lee said in a Friday note.
Load Error
Lee is confident that inflation is indeed tracking lower than consensus based on real-time measures of CPI, and that inflation is actually nearing the Fed’s long-term target of 2%.
“If this plays out, the Fed’s pause will morph into a data dependent mode, where the bar is raised for further [interest rate] hikes,” Lee said. “We expect investors to see this as a green light for risky assets, which means equity investors will not be fighting the Fed.”
“Even if the Fed raises rates a few more times in 2023, to us, the key is whether this is in response to rising inflationary pressures. And our view is that these pressures are diminishing,” Lee said.
Bolstering Lee’s bullish case is the fact that market breadth is beginning to expand, which is a healthy sign for the sustainability of the current rally. In other words, more and more stocks are beginning to participate in the upside, rather than the rally being drive by just a handful of mega-cap tech stocks.
“Market breadth is notably improving,” Lee said, pointing to the outperformance of small-cap stocks this week. “Still want to buy dips as market breadth expanding.”
Lee continues to recommend investors stay overweight to the industrials and regional bank sectors, and he reiterated his 2023 year-end S&P 500 price target of 4,750, representing potential upside of 10% from current levels.
