Breaking News
Get 45% Off 0
Selloff or market correction? Either way, here's what to do next
See Overvalued Stocks

5 Charts to Understand the Fed's Liquidity Injection and Its Effect on Markets

By Raoul PalStock MarketsMar 27, 2023 17:00
ng.investing.com/analysis/5-charts-to-understand-the-feds-liquidity-injection-and-its-effect-on-markets-160109
5 Charts to Understand the Fed's Liquidity Injection and Its Effect on Markets
By Raoul Pal   |  Mar 27, 2023 17:00
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
US500
-1.22%
Add to/Remove from a Portfolio
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

In this week’s newsletter, we’re going to run through several interesting market charts on our radar...

Let’s dive right in.

GMI Chart 1 – Fed Net Liquidity vs. S&P 500

Another week, another EXPLOSION in Fed liquidity as we have been expecting. We have now erased eleven months of QT in less than two weeks with a $434 billion dollar injection. Boom!

Fed Net Liquidity vs. S&P 500
Fed Net Liquidity vs. S&P 500


GMI Chart 2: Fed Net Liquidity vs. S&P 500 (Scatter Chart)

The surge in liquidity also means that the S&P 500 is back to trading bang on fair value versus domestic liquidity implied fair value conditions; liquidity is the only thing that matters for risk assets right now.

Fed Net Liquidity vs. S&P 500 Weekly
Fed Net Liquidity vs. S&P 500 Weekly

GMI Chart 3: S&P 500 with % of Stocks Above the 50-Day Moving Average

Additionally, the S&P 500 is also back to being oversold on a number of metrics:

  • 1. The % of stocks trading above the 50-day moving average fell below the 20% threshold this week:

S&P 500 Vs. % of Stocks Above 50-Day Moving Average
S&P 500 Vs. % of Stocks Above 50-Day Moving Average

  • 2. The 25-Day Toraku Ratio is also back in oversold territory after signaling overbought back at the beginning of February – currently the most oversold since October of last year.

S&P 500 vs. 25-Day Toraku Ratio
S&P 500 vs. 25-Day Toraku Ratio

  • 3. The % of stocks trading with a 14-day RSI less than 30 rose to 27% last week, which triggered right on key support for the S&P 500. We think it holds. Let’s see:

S&P 500 vs. % of Stocks With a 14-day RSI Below 30
S&P 500 vs. % of Stocks With a 14-day RSI Below 30

GMI Chart 4: CFTC S&P 500 Net Speculative Positioning as a % of Total OI vs. S&P 500 YoY%

Also, speculators remain very short the S&P 500 at -4% of total open interest.

CFTC S&P 500 Net Speculative Positioning vs. S&P 500 YoY%
CFTC S&P 500 Net Speculative Positioning vs. S&P 500 YoY%

GMI Chart 5: CFTC Aggregate Net Speculative Positioning in US Treasuries

... and it’s the same when we look at bonds – still near record short. Fuel for the fire!

CFTC Aggregate Net Speculative Positioning in US Treasuries
CFTC Aggregate Net Speculative Positioning in US Treasuries

The GMI Big Picture

We continue to hold the view that CPI is going to melt over the coming three to six months. Regional Fed Supplier Delivery Times continued to collapse in March and currently have CPI closer to 0%.

Regional Fed Supplier Delivery Times vs. US CPI
Regional Fed Supplier Delivery Times vs. US CPI

Also, don’t forget what we’ve been saying for some time: big spikes in inflation tend to be reflexive (symmetrical in rise and fall) due to the base effect: elevator up = elevator down!

US CPI vs. Average of 5 Major YoY Outbursts of Inflation
US CPI vs. Average of 5 Major YoY Outbursts of Inflation

Additionally, our GMI Financial Conditions Index continues to skyrocket higher on the back of recent dollar weakness, plunging commodity prices and lower bond yields, which will be a tailwind for the ISM in a couple of months.

ISM vs. GMI Financial Conditions Index
ISM vs. GMI Financial Conditions Index

... with our GMI ISM Momentum Index currently suggesting that the ISM could be up as much as 2.7 points year-on-year by September, targeting an ISM of around 54...

ISM YoY vs. GMI ISM Momentum Index
ISM YoY vs. GMI ISM Momentum Index

In the meantime, the record short in Treasuries coupled with a near-record dislocation of bonds with the business cycle, needs to close. Bond yields are heading MUCH lower from here.

ISM vs. US 10-Year Yield
ISM vs. US 10-Year Yield

The last chart we’ll leave with you to mull over is below. Remember, liquidity is the tide that lifts all ships and, as we’ve been saying now since September 2022 when we wrote our September GMI Monthly titled “The Turn is Near”, more cowbell (liquidity) is coming. MOAR!

Fed Net Liquidity/S&P 500/US 30-Year Bond Yield
Fed Net Liquidity/S&P 500/US 30-Year Bond Yield

Next week, as we are writing the April GMI Monthly, we will not release a weekly update but, as ever, we will share something special with you from one of our recent GMI Monthly publications. Stay tuned!

***

Want to read these the moment they come out? Sign up entirely free for my newsletter, Short Excerpts From Global Macro Investor here. New articles published every single Sunday.

5 Charts to Understand the Fed's Liquidity Injection and Its Effect on Markets
 

Related Articles

Dr. Arnout ter Schure
Is the S&P 500 Road to 6400-6500 in Jeopardy? By Dr. Arnout ter Schure - Mar 04, 2025

Using the Elliott Wave Principle (EWP), we have been successfully tracking the most likely path forward for the S&P 500 (SPX) over several months. Although there are many ways...

James Picerno
Global Assets Look Set to Outperform US Stocks By James Picerno - Mar 04, 2025

The long-run expected total return for the Global Market Index (GMI) fell in February, sliding to an annualized 7.1% vs. the previous month’s 7.4%. The downward revised forecast...

5 Charts to Understand the Fed's Liquidity Injection and Its Effect on Markets

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Apple
Continue with Google
or
Sign up with Email