ACTV - S&P 500: It Is All About Liquidity

2024-05-20 23:14:02 ET

Summary

• Liquidity is the key factor that drives market performance.
• Short-term liquidity outlook: Fed tightening is offset by drained reverse repo, while Yellen is building up liquidity to deploy in the fall.
• Long-term liquidity outlook: The aging population and slow growth require more liquidity, which can be solved through stimulus measures.

Dear readers,

My previous coverage on the S&P 500 ( SPY ) was, particularly since the start of this year, focused on the short term. First, I issued a HOLD rating in an article called Time To Hedge, Here's How and suggested that investors consider hedging their downside below 5,000 points via a zero cost option collar. The call was based on a perceived loss of momentum related to an increased risk of reaccelerating inflation and a Fed reluctance to cut interest rates. Then, more recently, I upgraded the index to a BUY in an article called Positive Outlook, I'm Modifying My Hedge and suggested unwinding half of the original hedge to retain all upside....

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