The American stock market ended the first quarter in a state of deep conceptual uncertainty. The attention of the majority of traders and financial media today is closely focused on the rhetoric of Federal Reserve officials and expectations for the notorious "pivot" or, conversely, the maintenance of a tight monetary policy. The market is left guessing: Will the Fed change course in the coming months, or will the regulator remain a hostage to its own targets?
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They have meaning only in the context of how exactly they influence the actual quantity of money in the economy. The true mirror reflecting the real state of affairs is not the text of the FOMC minutes, but the Fed Net Liquidity. Fed Net Liquidity cuts through the noise and shows the actual volume of "free money" that the U.S. financial system relies on.
Beginning in 2022-2023, the liquidity curve didn't simply stop growing — it transitioned into a phase of stagnation with a slight, but clear, downtrend. The physical amount of money in the financial system is no longer growing. For the broader market, this means one thing: the fuel that provided the broad-based growth of assets on all fronts is no longer entering the financial system.
The key question for investors today is not what Fed Chair Jerome Powell will say at the next press conference, but where this specific curve will head next. Undoubtedly, macroeconomic analysis today is impossible without factoring in the geopolitical context. The situation in the Middle East, the tension around the Strait of Hormuz, and, as a consequence, oil (CLK26) entrenching itself at high levels — this is a powerful factor exerting colossal pressure on business expenses and inflationary expectations.
To ignore the energy shock would be a mistake; the cost of a barrel directly translates into higher prices for logistics and production, forcing the Fed to remain cautious. But here is a nuance: for all their destructive power, oil prices remain an event-driven, tactical factor. They dictate market tactics in the moment and hit the margins of specific sectors.
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