Liquidity is the necessary lubricant of a healthy bull market. Without it, markets can crumble no matter how good the fundamentals may appear. With it, the market can roar ahead because the financial system is awash in funds. To prove the point, let's examine the chart below. So the point is clear.
Liquidity is the key force behind the stock market.
Since the Federal Reserve has a direct influence on money creation, you should keep a close eye on both their interest rate actions and the money supply figures. Many times, the Fed will raise the Federal Funds rate but money supply growth never slows down. But when the Fed means business, you'll notice that money supply growth slows after the Fed hikes interest rates. Not surprisingly, the stock market has stagnated this year. Money supply figures are reported in the Wall Street Journal and Investors Business Daily every Friday.