Investors are taking advantage of higher interest rates, parking nearly $6 trillion in money market accounts, according to data from the Investment Company Institute. With the Federal Reserve suggesting at least three interest rate cuts next year, many investors may move that cash back into the stock market. US Bank Wealth Management Investment Director Bill Northey joins Yahoo Finance to discuss the data and what it could mean for the stock market.

Northey explains what signs to look out for: "Some of the factors that we need to be able to evaluate are those lagged effects of the cumulative monetary policy tightening that is already in place and even if that's reversed as soon as March of next year, which is where the futures markets are pointing, we still have to chew through the prior actions and the impact across the manufacturing sector, which is showing more signs of weakness than we are seeing within the consumer and services sector."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

RACHELLE AKUFFO: Give us some context here. Obviously, we have this everything rally here. A lot of investor hopes about just how much and how quickly the Fed is going to cut rates next year. But this money that's been on the sidelines, what does that add to this?

BILL NORTHEY: Great to be with you, Rachelle. And happy holidays. We've certainly seen just a furious rally since the October CPI print, which has been confirmed by subsequent data. And it's lit a fire under the equity markets.

We've seen the S&P 500 up 15%. Small caps, as you pointed out, in the prior segment up even more at 20%. And notably, it's impacted bonds as well, where we've seen yields come down over 100 basis points on the 10-year Treasury.

So the everything rally is certainly an apt description for what we have seen since that more favorable inflation data that has allowed the Federal Reserve to pivot. There's a lot of cash on the sidelines. We see this trend likely intact, at least through the end of this year.

But we have to acknowledge as we move into 2024, it is going to be a somewhat slower environment. Earnings expectations may be elevated, relative to what we can actually deliver. And valuations are at the high side of fair. So there are risk factors that we need to acknowledge as well, in terms of portfolio construction.

RACHELLE AKUFFO: So let's break down some of those risks so that people can look at how they're positioning their portfolios. When you have an everything rally, it can be hard to get-- when you get lost in the hype, though. What are some of the specific catalysts that you're focusing on for next year?

BILL NORTHEY: Well, I think specific catalysts, in terms of things that can propel us forward, we are likely to see, consistent with our view, a soft landing next year where we don't experience a recession, but do experience some degree of slowdown into the year. But a recession, or periods of contraction, is a non-zero probability. And we need to respect those risks. Some of the factors that we need to be able to evaluate are those lagged effects of the cumulative monetary policy tightening that is already in place. And even if that's reversed as soon as March of next year, which is where the futures markets are pointing, we still have to chew through the prior actions and the impact across the manufacturing sector, which is showing more signs of weakness than we're seeing within the consumer and the services sector.