Every few months, you’ll hear someone say there’s record cash on the sidelines ready to pour into the market. The implication is always the same. That gigantic pile of cash represents untapped buying power, a catalyst for the next leg higher.
It just happened in September as we saw all the up and to the right charts of money-market funds.
Assets in money-market funds reached a record $7.7 trillion. That number has now tripled in 8 years.
If that’s cash not the sidelines, why has it continued to rise while the stock market has continued to set new all-time highs. So far in 2025 the S&P 500 has set 32 new all-time highs.
Why have money market-market assets also continued to climb to all-time high levels? Isn’t that cash that supposed to be “deployed”?
That’s because the whole framing of cash on the sidelines has missed the point.
Yes, money market balances are at all-time highs. But so is the value of everything else. The S&P 500’s total market cap has surged over the last decade. Even as cash balances look large in absolute terms, they haven’t grown nearly as fast relative to total asset values.
As a percentage of total market cap, cash hasn’t really budged. In fact, as a percentage of the S&P 500 market cap, it’s near a record low.
Let’s look at it another way. We’re a society with more wealth.
As portfolios appreciate, the dollar amount sitting in cash or money market funds will naturally rise, even if allocations haven’t changed. If your portfolio doubles, keeping the same 5% in cash means your cash balance doubles too.
If your portfolio was $500,000 a few years ago and you kept 5% in cash, that’s $25,000. Now suppose your portfolio’s worth $1 million and you’ve kept that same 5% cash allocation. You’re sitting on $50,000. Double the cash, but your behavior hasn’t changed at all.
So when headlines scream about “record cash on the sidelines,” they’re really just describing a market that’s bigger than it used to be. The nominal dollar figure doesn’t tell you much about positioning or sentiment. It tells you the system as a whole has grown.
Cash levels always rise in nominal terms because everything rises in nominal terms over time. Markets inflate, balance sheets grow, and even if people hold the same percentage of cash, that pile looks enormous on paper.
It’s not bearish, but it’s not a secret bullish catalyst either. It’s just math.
There is no sideline. Just a growing market, shifting allocations, and a lot of lazy headlines. When you zoom out, it’s just a bigger market, not a hidden gold mine.
It shouldn’t be labeled as cash on the sidelines. It shouldn’t be labeled as dry powder ready to be deployed.
It should be called what it is, cash.
The Coffee Table ☕
I really enjoyed Ben Carlson’s post called Why You Don’t Feel Rich. He made some interesting points and I liked his visual framing that he did. This sentence really stuck out to me, “If you don’t own any financial assets you’re probably treading water at best.”
Has time on social media peaked? It’s an interesting question to ponder after seeing this chart.
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