2024: Stock Market Faces Liquidity Shock and Bullish Year Amidst Fed Rate Cuts
The biggest risk to the stock market in 2024 is the Federal Reserve's balance sheet reduction program, which could potentially trigger a liquidity shock as Treasury issuances remain high. Ned Davis Research warns that if the Fed continues with quantitative tightening (QT) and the Treasury continues to issue a significant amount of Treasury bills, it could lead to a decline in liquidity, negatively impacting the stock market. This decline in liquidity may also limit banks' ability to provide loans, restricting economic growth. Despite concerns, Fed Chair Jerome Powell has pledged to continue with QT unless the economy collapses.