On Friday, a trader told one financial media outlet that the bull case for equities can only be “confirmed” once the mountain of cash parked on the sidelines is coaxed into markets.

It was a generic assessment for a generic market wrap, but it underscored an important point I’ve emphasized myself over the course of the summer stock melt-up: There was never an “all-in” moment on the flows side for US equities despite the A.I. frenzy and associated sentiment boost.

Net flows to US-focused equity ETFs and mutual funds were negative to the tune of almost $70 billion prior to Nvidia’s game-changing beat and raise in late-May. Between the company’s “guide heard ’round the world” and the resolution of the debt ceiling standoff a week later, flows inflected, but never managed to turn positive on net.

Meanwhile, cash continued to pour into US money market funds, where yields are the highest in decades. Money fund AUM rose another $18 billion last week, according to ICI. There’s now a record $5.643 trillion+ parked on the proverbial sidelines. If that money ever gets tired of earning “just” 5% and capitulates into stocks (where you could’ve made ~40% in a Nasdaq 100 ETF this year), it could conceivably be a game changer.

With that in mind, note that US equities just enjoyed their largest one-week inflow of 2023.

The $26.398 billion haul was the biggest since March of 2022 and, as the figure above shows, it flipped net flows to US equity-focused funds positive for the first time this year.

You might be inclined to suggest the wall of money into stocks was indicative of conviction in equities, but not so fast. Note that net flows to non-US equity funds were negative over the week. This was a US-centric story, and as BofA’s Michael Hartnett wrote, it likely reflected “confidence in [the] soft landing consensus.”

There was no wholesale capitulation off the sidelines. Indeed, global money market funds took in nearly $29 billion during the same week.

Money funds are now on track for $1.5 trillion in inflows for 2023, a record by a country mile.

Given that, and the net outflow from non-US stock funds, it might be best to view the influx of cash to US shares as a vote of confidence in US economic exceptionalism at a time when both the European and Chinese economies are teetering. Chinese equity funds lost $1.467 billion during the week, the second straight weekly outflow.

“Nothing screams ‘bear market in conviction’ more than MMFs seeing $1 trillion of inflows YTD,” Hartnett went on. “Cash goes to bonds in a hard landing, stocks and credit in a soft landing and stays in cash and goes to commodities in ‘no landing’.”

I’d be remiss not to at least suggest that anyone buying into stocks now might’ve missed the boat, or at least that’s what bears would tell you (ironic considering that listening to them is what would’ve caused you to miss the boat in the first place). The S&P trades at ~20x and if there’s not a recession soon, the yield curve’s reputation as an infallible oracle will suffer a grievous blow.