I often read of money going into stocks. And money coming out of stocks. And “Now is the time to buy stocks, because all the cash is on the sidelines!”. However, all this talk seems misguided at best. Cash has never gone “into” the market. There is no magic cookie jar that “holds” dollars when you purchase a stock. No dollars come out of the market when you sell a stock. Someone else gives you there money or you give someone else your money, but the money is held by someone at all times.
The amount of cash on the sidelines grows when new money is created, and shrinks when money is retired (what, it *could* happen 😂). Personally, I like to look at M2 whenever I want to know how much cash there is. As you can see, our M2 supply is always going up. So cash on the sidelines is always higher than it was yesterday.
When prices for stocks go up and down, what has changed is the valuation of the company. No cash is created or destroyed as values go up or down.
When I read or hear someone talk about cash on the sidelines, or money going into stocks, or money coming out of stocks, I pay very close attention to what decisions they promote based on this information.