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EndGame Macro
The Fed Is Shrinking, Stocks Have Been Soaring And Here’s Why
The Fed’s balance sheet has been shrinking for three years down roughly 24% while the S&P 500 has climbed more than 80%. If you came of age in the post GFC world where stocks only go up when the Fed prints, this looks impossible.
But the chart isn’t breaking the rules. It’s revealing that the rule people believed in was never that simple. QE adds liquidity, yes. But markets don’t move mechanically they move on expectations, on changes in the cost of money, and on how investors imagine the next year will look compared to the last. Over this period, mega cap earnings held up better than feared, recession calls kept getting pushed out, and the market began pricing in a softer rate path long before the Fed actually shifted. The balance sheet was shrinking, but the story investors were trading was improving.
And here’s the uncomfortable layer beneath it…the economy itself has been deteriorating underneath the index. Bankruptcies are climbing toward 15 year highs. Consumer delinquencies, student loans, autos, credit cards have been rising. Commercial real estate is cracking. None of that registered in the S&P because the companies feeling that pain aren’t the ones driving the index. The chart is telling you that the stock market wasn’t pricing the lived economy, it was pricing a narrow group of giants and a future shaped by an expected Fed pivot.
Why Stocks Can Still Rise While the Fed Shrinks
QT isn’t the entire liquidity universe. You can close one valve while others stay wide open. Massive fiscal deficits, corporate buybacks, foreign inflows, stabilizing bank reserves, money market dynamics all of these offset the balance sheet runoff in ways that matter far more to day to day market behavior. Markets react to the net flow of liquidity, not one line item on the Fed’s spreadsheet.
But there’s also the psychological element. Markets price where policy is going, not where it currently stands. When investors sense the Fed is done hiking or even preparing to cut the reaction often overwhelms whatever QT is still happening in the background. The direction of monetary policy moves stocks more than the size of the Fed’s portfolio.
And then there’s the concentration problem. This rally hasn’t been broad or evenly distributed. A handful of dominant companies…firms flush with cash, global in reach, and largely insulated from consumer credit cracks have pulled the index up on their own. When the top 10 companies carry that much weight, the S&P can rise even while the broader economy is clearly losing altitude.
My Read
This chart doesn’t overturn the idea that liquidity matters. It just shows that liquidity comes from many places, and the market doesn’t wait for the Fed to spell out the future before it trades it. A shrinking balance sheet can exist alongside rising equities as long as profits look stable, dominant companies keep buying back shares, and investors believe the policy environment ahead will be easier than the one behind.
Meanwhile, the deterioration in delinquencies, bankruptcies, and household strain doesn’t negate the rally, it simply highlights the gap between the parts of the economy that drive the index and the parts that feel the stress first. Markets move on what they think comes next, and for the last three years, that imagined future looked better to investors than the headlines or the lived experience of most Americans suggested.
That gap can persist for a while. It just rarely persists forever.
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The Fed Is Shrinking, Stocks Have Been Soaring And Here’s Why
The Fed’s balance sheet has been shrinking for three years down roughly 24% while the S&P 500 has climbed more than 80%. If you came of age in the post GFC world where stocks only go up when the Fed prints, this looks impossible.
But the chart isn’t breaking the rules. It’s revealing that the rule people believed in was never that simple. QE adds liquidity, yes. But markets don’t move mechanically they move on expectations, on changes in the cost of money, and on how investors imagine the next year will look compared to the last. Over this period, mega cap earnings held up better than feared, recession calls kept getting pushed out, and the market began pricing in a softer rate path long before the Fed actually shifted. The balance sheet was shrinking, but the story investors were trading was improving.
And here’s the uncomfortable layer beneath it…the economy itself has been deteriorating underneath the index. Bankruptcies are climbing toward 15 year highs. Consumer delinquencies, student loans, autos, credit cards have been rising. Commercial real estate is cracking. None of that registered in the S&P because the companies feeling that pain aren’t the ones driving the index. The chart is telling you that the stock market wasn’t pricing the lived economy, it was pricing a narrow group of giants and a future shaped by an expected Fed pivot.
Why Stocks Can Still Rise While the Fed Shrinks
QT isn’t the entire liquidity universe. You can close one valve while others stay wide open. Massive fiscal deficits, corporate buybacks, foreign inflows, stabilizing bank reserves, money market dynamics all of these offset the balance sheet runoff in ways that matter far more to day to day market behavior. Markets react to the net flow of liquidity, not one line item on the Fed’s spreadsheet.
But there’s also the psychological element. Markets price where policy is going, not where it currently stands. When investors sense the Fed is done hiking or even preparing to cut the reaction often overwhelms whatever QT is still happening in the background. The direction of monetary policy moves stocks more than the size of the Fed’s portfolio.
And then there’s the concentration problem. This rally hasn’t been broad or evenly distributed. A handful of dominant companies…firms flush with cash, global in reach, and largely insulated from consumer credit cracks have pulled the index up on their own. When the top 10 companies carry that much weight, the S&P can rise even while the broader economy is clearly losing altitude.
My Read
This chart doesn’t overturn the idea that liquidity matters. It just shows that liquidity comes from many places, and the market doesn’t wait for the Fed to spell out the future before it trades it. A shrinking balance sheet can exist alongside rising equities as long as profits look stable, dominant companies keep buying back shares, and investors believe the policy environment ahead will be easier than the one behind.
Meanwhile, the deterioration in delinquencies, bankruptcies, and household strain doesn’t negate the rally, it simply highlights the gap between the parts of the economy that drive the index and the parts that feel the stress first. Markets move on what they think comes next, and for the last three years, that imagined future looked better to investors than the headlines or the lived experience of most Americans suggested.
That gap can persist for a while. It just rarely persists forever.
The Fed's balance sheet has shrunk 24% over the past 3 years while the S&P 500 has advanced 82%, dispelling the myth that the stock market is dependent on QE to rise. $SPX https://t.co/U5p5fTKgcX tweet
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memenodes
I’m never coming back to crypto, whales always win
Me as soon as crypto starts pumping: https://t.co/JQY0XCu4IY
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I’m never coming back to crypto, whales always win
Me as soon as crypto starts pumping: https://t.co/JQY0XCu4IY
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Offshore
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EndGame Macro
The Generation That Caught the Wave of a Lifetime
People over 70 now control about a third of all U.S. household wealth. That’s the highest share we’ve ever recorded, and it didn’t happen by accident or luck. It happened because this generation’s life story lined up almost perfectly with the way the modern financial system evolved.
And when you trace that path, the picture becomes clearer…almost inevitable.
Why This Generation Ended Up Owning So Much
Start with timing. Most Americans who are 70 plus today bought homes in the 1970s, 80s, or early 90s periods when the dollar stretched further, wages went further, and housing wasn’t treated like a speculative asset class. A single income could often buy a starter home. A college degree didn’t come with a lifetime of debt attached to it. And the typical cost of living package allowed families to save in a way that feels almost foreign now.
Then combine that timing with the monetary regime shift that began in the early 1980s. For forty years, interest rates did mostly one thing…fall. Lower and lower. Every step down increased the value of the assets people already owned. Home values climbed. Bonds climbed. Stocks climbed. Even retirement accounts sitting quietly in index funds benefitted simply because the entire financial system was being repriced upward.
You didn’t have to trade like a genius. You just had to hold on through history’s longest asset boom.
And because most households build wealth primarily through housing, the numbers get even more striking. Nearly 80% of Americans over 65 own a home and around two thirds of them own it outright, with no mortgage hanging over them. When home prices doubled and then doubled again, that equity didn’t trickle up or down; it pooled right where the ownership already was.
What People Miss When They Look at This Chart
This isn’t just a story about individual success or discipline. It’s a story about structure and how policy, demographics, and the timing of one large generation moving through the system can reshape the economy.
A huge cohort was born right as the U.S. entered the most explosive population and productivity expansion in its history. They matured into the workforce during a period of higher purchasing power. They bought homes before housing scarcity and financialization transformed the market. And they lived long enough to benefit from decades of compounding in a system increasingly designed to stabilize asset prices.
When you step back, the curve on this chart isn’t surprising. It’s almost the logical endpoint of the world they inherited and the world they lived through.
The Bigger Implication
The question now isn’t just how much wealth they hold, it’s what happens next. A generation this large holding this much capital changes everything with housing turnover, consumption patterns, intergenerational transfers, even the politics of inflation and interest rates.
Understanding the chart means understanding the era that produced it. And it means recognizing that the next era, the one where this wealth eventually moves, slowly or suddenly may reshape just as much as the last fifty years did.
tweet
The Generation That Caught the Wave of a Lifetime
People over 70 now control about a third of all U.S. household wealth. That’s the highest share we’ve ever recorded, and it didn’t happen by accident or luck. It happened because this generation’s life story lined up almost perfectly with the way the modern financial system evolved.
And when you trace that path, the picture becomes clearer…almost inevitable.
Why This Generation Ended Up Owning So Much
Start with timing. Most Americans who are 70 plus today bought homes in the 1970s, 80s, or early 90s periods when the dollar stretched further, wages went further, and housing wasn’t treated like a speculative asset class. A single income could often buy a starter home. A college degree didn’t come with a lifetime of debt attached to it. And the typical cost of living package allowed families to save in a way that feels almost foreign now.
Then combine that timing with the monetary regime shift that began in the early 1980s. For forty years, interest rates did mostly one thing…fall. Lower and lower. Every step down increased the value of the assets people already owned. Home values climbed. Bonds climbed. Stocks climbed. Even retirement accounts sitting quietly in index funds benefitted simply because the entire financial system was being repriced upward.
You didn’t have to trade like a genius. You just had to hold on through history’s longest asset boom.
And because most households build wealth primarily through housing, the numbers get even more striking. Nearly 80% of Americans over 65 own a home and around two thirds of them own it outright, with no mortgage hanging over them. When home prices doubled and then doubled again, that equity didn’t trickle up or down; it pooled right where the ownership already was.
What People Miss When They Look at This Chart
This isn’t just a story about individual success or discipline. It’s a story about structure and how policy, demographics, and the timing of one large generation moving through the system can reshape the economy.
A huge cohort was born right as the U.S. entered the most explosive population and productivity expansion in its history. They matured into the workforce during a period of higher purchasing power. They bought homes before housing scarcity and financialization transformed the market. And they lived long enough to benefit from decades of compounding in a system increasingly designed to stabilize asset prices.
When you step back, the curve on this chart isn’t surprising. It’s almost the logical endpoint of the world they inherited and the world they lived through.
The Bigger Implication
The question now isn’t just how much wealth they hold, it’s what happens next. A generation this large holding this much capital changes everything with housing turnover, consumption patterns, intergenerational transfers, even the politics of inflation and interest rates.
Understanding the chart means understanding the era that produced it. And it means recognizing that the next era, the one where this wealth eventually moves, slowly or suddenly may reshape just as much as the last fifty years did.
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Fiscal.ai
Salesforce went from 2% to 21% operating margins in 3 years.
How much further could margins expand?
$CRM https://t.co/T5J726Jcs6
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Salesforce went from 2% to 21% operating margins in 3 years.
How much further could margins expand?
$CRM https://t.co/T5J726Jcs6
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EndGame Macro
https://t.co/MibWSawuhc
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https://t.co/MibWSawuhc
BREAKING: U.S. layoffs set to surpass the Great Recession levels, on track to be worst since Great Depression. tweet
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memenodes
boomers when you don’t want to buy their overpriced house and retire at 90 https://t.co/pUwGT0sJQE
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boomers when you don’t want to buy their overpriced house and retire at 90 https://t.co/pUwGT0sJQE
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