Discover how expanding liquidity is fueling a ‘QE-like’ rally in the stock market

  • Wall Street strategists have found that liquidity in the U.S. financial system is expanding, driving a ‘QE-like’ rally in stocks
  • Central banks, including the Fed, have boosted support for markets by allowing bank reserves to expand
  • The Fed’s shrinking balance sheet is not as important as the increase in reserves in the U.S. banking system
  • Rising bank reserves are driven by factors such as the drain of the Fed’s reverse-repo facility
  • The wave of liquidity support for markets began in late 2022 and has continued into 2023
  • Top strategists at investment banks have also discussed the impact of liquidity on markets
  • If the liquidity impulse fades, stocks could face trouble
  • The rebound in the market in 2023 has been ‘QE-like’ due to the increase in reserves and fewer securities available for investment

Wall Street strategists have discovered that the increase in liquidity in the U.S. financial system is the driving force behind the rally in U.S. stocks in 2023. While the Fed has been reducing the size of its balance sheet, central banks have allowed bank reserves to expand, providing more capital for markets and the economy. This increase in liquidity has historically led to higher securities prices, even if the strength of the economy or corporate earnings don’t justify it. The rise in bank reserves is driven by factors such as the drain of the Fed’s reverse-repo facility. The wave of liquidity support began in late 2022 and has continued into 2023. Top strategists at investment banks have also discussed the impact of liquidity on markets. However, if the liquidity impulse fades, stocks could face trouble. The rebound in the market in 2023 has been compared to the effects of quantitative easing (QE), as the increase in reserves and fewer securities available for investment have driven prices higher.

Public Companies: Citigroup (C), Morgan Stanley (MS), Goldman Sachs Group (GS)
Private Companies: undefined
Key People: Matt King (Former Citigroup strategist, Founder of Satori Insights)

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Factuality Level: 7
Justification: The article provides information about the increase in liquidity in the financial system and its impact on the stock market. It cites research from former Citigroup strategist Matt King and mentions the actions of central banks, including the Federal Reserve. The information is supported by data from the Fed and quotes from other investment banks. However, the article lacks in-depth analysis and may oversimplify the relationship between liquidity and stock market performance.

Noise Level: 7
Justification: The article provides some analysis of the relationship between central bank balance sheets and market liquidity, but it lacks scientific rigor and intellectual honesty. It relies heavily on the opinions of one individual and does not provide much evidence or data to support its claims. The article also goes off-topic at times, discussing the performance of stock indexes and the impact of quantitative easing. Overall, the article contains some relevant information but lacks depth and thorough analysis.

Financial Relevance: Yes
Financial Markets Impacted: The article discusses the impact of central bank liquidity on markets, which can have implications for stock prices and credit spreads.

Presence of Extreme Event: No
Nature of Extreme Event: No
Impact Rating of the Extreme Event: No
Justification: The article focuses on the impact of central bank liquidity on markets, which is a financial topic. There is no mention of an extreme event in the article.

Reported publicly: www.marketwatch.com