Return of capital to the market: How increased liquidity can lay the foundation for a bearish rebound

While investors observed the lowest liquidity levels in recent years at $5.56 trillion on October 30th, the past weeks have brought a clear turnaround in market dynamics. A six-week government shutdown drained a huge sum of $621 billion from the market, but the resumption of government operations has already changed the trajectory of this flow.

Liquidity restoration is happening faster than expected

So far, $70 billion has returned to the financial system, and Ark Invest analysts forecast that normalizing the overall Treasury account balances in the next 5-6 weeks could bring an additional $300 billion. This progressive capital restitution spans many market segments, from stocks to derivatives, creating potentially favorable conditions for reversing recent downward trends.

Monetary policy indicates the support direction

At the same time, the wind is shifting in the Federal Reserve’s policy. New York Federal Reserve President John Williams, Governor Christine Waller, and San Francisco Federal Reserve President Mary Daly expressed readiness to cut interest rates. These signals have increased market probabilistic estimates of faster rate cuts to around 90%, indicating a potential shift in Fed sentiment from tightening to supportive policy.

The end of quantitative tightening could change the game

A key turning point will be December 1st, when Ark Invest expects a suspension of the (QT) program. The combination of liquidity return, rate cuts, and the end of QT could lay a solid foundation for potential market recovery. Investors are watching whether the end of the year will bring the long-awaited rebound and normalization of trading conditions.