Equities aren’t the only game in town anymore when it comes to asset allocation. Maybe you noticed.

Cash has poured into money market funds (so, cash into “cash,” if you like) thanks recently to turmoil in the banking sector. But more broadly, the allure of 4%-5% yields on riskless, very-short-dated US government paper is hard to resist.

Suffice to say “TINA” was a knock-on casualty of the mass acronym extinction brought on by soaring inflation and central banks’ efforts to contain it. NIRP, ZIRP and LSAP were TINA’s sponsors. When they perished in the flames of scorching-hot price growth, TINA melted away as a direct consequence.

“The current level of market yields clearly shows that the era of ‘There Is No Alternative’ has ended and that now there are reasonable alternatives to equities,” Goldman analysts including Cormac Conners and David Kostin said, in a note dated March 22. “Although equity demand remained resilient amid sharply rising rates in 2022, we believe the YTD flows into money market and bond funds signal an escalating household shift away from equities and toward the alternatives,” they added.

Goldman adjusted the Fed’s “household” series for the bank’s estimate of net hedge fund demand, which is helpful for obvious reasons. They came away concluding that actual households bought just $209 billion in equities last year — so, less than what’s illustrated in the right-most chart above, and down nearly 80% from 2021.

Considering the presence of suddenly viable alternatives, Goldman’s clients are curious to know if household equity demand is likely to fall further going forward, and if so, by how much. The bank modeled demand as a function of 10-year US yields and the personal savings rate, and one specification took account of the bank’s estimate of net hedge fund equity demand “for robustness.”

I’ll spare readers the specifics of the modeling exercise, in favor of just noting that household equity demand is sensitive to the personal savings rate and 10-year yields. From 2007 to 2019, the sensitivity to yields increased markedly.

The bank’s current forecast calls for household selling of $750 billion in equities this year (chart on the right, above), but it could be as low as $400 billion or as high as $1.1 trillion, depending. That latter figure would amount to 1% of total financial assets.

As the table above shows, the higher 10-year yields are and the lower the savings rate, the more net equity selling there’s likely to be, and vice versa.

The full analysis is a dozen pages long, but Conners and Kostin summarized the relevant macro and policy regime shifts succinctly in just two short paragraphs. To wit:

Depressed interest rates in the post-GFC era pushed investors out the risk spectrum and were a key driver of household equity demand. When allocating assets, investor face a trade-off between risk and return. Low interest rates in the wake of the Global Financial Crisis drove investors — including households — toward riskier assets like equities. In the average year from 2010-21, households were net buyers of equities worth 0.2% of their financial assets. In contrast, in the average year since 1980 households sold equities worth 0.4% of their financial assets. Over the long run, household net equity demand has been negative, as equities tend to appreciate and households withdraw more capital than they invest.

However, the sharp rise in interest rates since the start of 2022 has altered the asset allocation landscape. Driven by sticky inflation and a series of hawkish Fed pivots, 1-year US Treasury yields have risen from 0.4% at the start of 2022 to 4.6% today. The gap between the earnings yield of the S&P 500 and 1-year US Treasury yields, which averaged 541bps from 2010-19, today stands at 101bps. Current yields are now more similar to the market environment from 1995-2004, when risk-free rates averaged 4-5% and households were net sellers of equities. Most relevant for many households, 3-month retail CD rates averaged 3.9% during that period compared with an average of 0.7% from 2010-21 and a level of 4.7% today.

For context, the $750 billion in net selling Goldman expects would offset six quarters of household equity demand.

It’ll be left to corporates and foreign investors to make up the difference. In that regard, I suppose I’d just note that buybacks aren’t especially popular in Washington these days, and the foreign bid depends at least in part on the trajectory of the dollar.