Stocks Haven’t Bottomed Yet. Here’s How You Can Tell

Stéphane Renevier

12 days ago1:38 min

Stocks Haven’t Bottomed Yet. Here’s How You Can Tell

The relationship between US liquidity (red line) and US stocks (yellow) has been clear historically: stocks sell off as liquidity is drained from the system, and only become buoyant again when liquidity floods in again. And with liquidity still pouring out of the system, stocks are unlikely to have bottomed out.

Liquidity is essentially all the credit and capital that flows through the US economy. It represents the total sources of funds available to the private and public sectors to help them function and grow. The positive relationship between liquidity and stocks makes sense: when liquidity is ample, governments and companies can easily (and cheaply) fund expansion projects and grow much faster than they would otherwise. When liquidity contracts, loans become harder to get or refinance

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