Capitalism

The Financial and Capital Markets

Optimism among the world’s investors continues to rise – well, the influx of capital from otherwise safe haven assets is keeping the markets buoyant at least. It is important to differentiate between a true measure of confidence and a natural adaptation of the market. The ICI’s Money Market Funds Assets index dropped to its lowest level in a year; but even after this steady, nine-month decline the gauge still shows $3.402 trillion on the sidelines. Much of this capital will eventually find its way back into the speculative space; but if it hasn’t been rediversified yet then those managing the funds are likely skeptical of the aggressive bull run we have experienced so far this year and are awaiting a true return of yield income. It is not a stretch to assume a high percentage of the capital that has migrated back to equities and other risky assets belongs to speculators and traders that are looking to take advantage of the impressive capital gains since February. If this is the case, then a correction could easily encourage a broad wave of profit-taking. A reversal is just a matter of time; but depending on when it takes place, the impact can be very different. Given enough time for dedicated capital to return to stabilize the market, the pullback could be mild. Alternatively, a turn when speculative funds define the market could trigger a plunge.