Cautiously Optimistic Liquidity is Stalling

Don't Panic!

1. The Big Picture

The macro backdrop is tightening across risk assets. Liquidity — the true oxygen of markets — is stalling and retracing to summer levels.
That pullback is what’s taking the air out of the rally and slowing the rhythm of risk-taking.

2. What is hurting liquidity?

Two forces are driving this:

• Treasury Drain: The U.S. Treasury is refilling its Treasury General Account (TGA), effectively sucking cash out of the banking system as it replenishes its reserves.
• Government Shutdown: Meanwhile, the shutdown clogs normal fiscal channels — halting regulatory programs, delaying spending bills, and blocking fiscal liquidity from re-entering the economy.

Together, these forces have pushed global money supply to stall speed, freezing the flow of fresh capital.
The good news? This won’t last forever — the liquidity cycle will turn again.

3. Will Powell skip a December Rate Cut?

Another headwind is the market’s fading confidence that the Federal Reserve will deliver rate cuts soon.

Right now, banks are borrowing at higher rates (Fed Funds) than what they earn on 2-Year Treasuries — a distortion that discourages lending, financing, and risk appetite.

The Fed has hinted at a December cut and possibly two more in 2026, but Chair Powell’s latest remarks cast doubt on that timeline.

Until rate-cut confidence returns, liquidity acceleration is on hold.
If the Fed wants to restore faith in this bull market, it needs to move closer to confirming December cuts — because investors don’t want to hear Powell crushing their dreams of an early-’90s-style boom.

4. Manufacturing Stuck Below 50

The ISM Manufacturing Index, a leading indicator of business confidence, failed to break above 50 to start November — meaning manufacturing remains in contraction.
Ironically, Trump-era tariffs have weakened supply-chain confidence, stalling hopes of a true “Made in America” manufacturing renaissance.

Simple rule:

ISM > 50 → Expansion
ISM < 50 → Contraction

5. The AI Economy: Still Early

On the other side of the cycle, we’re witnessing the early innings of the AI boom.

AI’s share of GDP is still small

Disruptive innovation doesn’t just destroy jobs — it creates new ones.

Market leverage remains low relative to total market cap, suggesting the younger generation is owning stocks, not collectibles or real estate — a healthier foundation for long-term growth.

Historic Leverage as a percent of Market Cap was much higher

Historically P/E Valuations were monster-ably higher

6. Technical Landscape

• Breadth: Still narrow — strength concentrated in a few megacaps.
• Sectors: Some are stretched, but leadership remains firm.
• Trend: Intact — buy-the-dip bias continues.

Leading themes to watch:

• Agenetic Workflow | $CRM $NOW $PATH
• Cyber Security | $DDOG $MDB $OKTA
• Blockchain Infrastructure | $LINK $COIN $CRCL
• AI Manufacturing | $TSLA $XMTR $SYM
• Nuclear Renaissance | $OKLO $SMR $NNE
• Power Grid Stability | $WULF $FLNC $HUT

How We bottom

• Gov Shut down Ends 👉🏽 Fiscal Liquidity + Clarity ACT + De-reg + Tax cuts
• Dovish Fed Commentary 👉🏽 M&N Cycle confidence
• Nov 17th NVDA Earnings Guidance 👉🏽 Cap-Ex Liquidity resumes
• ISM Service +50 👉🏽 Business confidence accelerated

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