Macro liquidity and credit injections are in a constant process of expanding or contracting in public markets and the underlying economy. Over the last 3 years, we have seen significant injections of macro liquidity into public markets and credit issuance into the underlying economy.
The net result has been nominal GDP running significantly above trend and equity valuations sitting at elevated levels at the index level.
This is true for the S&P 500:
As well as the NASDAQ:
If you read the report on how AI capex is linked to term premia, then you understand that the larger context is one where we are priced to perfection in many areas of the equity market and interest rate space.
This is WHY it is critical to understand HOW sustainable the liquidity environment is, because this frames HOW AGGRESSIVE you should be in taking risk. This is what we will cover below.
Interest rate and equity strategy pack:
Before we dig in, you can find the most updated regime models mapping WHERE we are in interest rate risk, FX flows, and equity rotations here: