Understand why liquidity—not earnings—is the primary force behind market trends.
What is Liquidity?
Liquidity refers to the amount of money flowing through the financial system. It determines how easily assets can be bought or sold.
Why Liquidity Matters
More Liquidity → Higher Asset Prices Less Liquidity → Market Decline
When liquidity increases, investors have more capital to allocate into risk assets.
Sources of Liquidity
- Central bank policies (QE/QT)
- Interest rate changes
- Government spending
Liquidity vs Economy
Markets often move based on liquidity before economic data reflects changes.
Conclusion
Liquidity drives markets. Fundamentals follow.