What Are Your Moves Tomorrow, May 12, 2022

Money is used to buy things, and some people and companies that have more money than they can use, will use that excess money to invest - hoping to get back more in the future than they have now.

Most of the time equity stocks give the best prospects for return, but not always. When interest rates are very high, they can do better than equity stocks. For example, over the last 100 years equity stocks have returned about 7% every year. Last month, though, you could buy an I bond that yields 9.6% over the next 12 months.

Interest rates aren't the same all the time, of course. When they are high, stocks are proportionately less attractive. When they are low, stocks are proportionately more attractive. Rates have been very very low - near zero - for so long that a lot of people with money have felt that there was no alternative to stocks. Not everyone wants to be 100% in stocks all the time, but lately folks who wanted a return greater than zero were almost forced to buy stocks.

That means that there are a lot of stock holders who would prefer to be in something else. Now that bonds are starting to yield real money, a lot of those folks are happy to sell their stocks and buy what they'd rather own.

It doesn't hurt that the Federal Reserve bought 9 Trillion of bonds in the last 10 years in order to keep bond prices high and yields low. They're now unloading those at a discount, which means anyone who wants to buy what the Fed is selling has their pick of exactly what they desire, sort of like an end-of-season sale at Brooks Brothers.

Overall, money is coming out of the equity markets for the above reasons, reasons that only have a little bit to do with the equities themselves.

/r/wallstreetbets Thread Parent