U.S. market liquidity, which fell to a multi-year low of $5.56 trillion on Oct. 30, has begun to reverse as government operations resume, Ark Invest wrote in its latest assessment.
The assessment stressed that the six-week federal shutdown drained $621 billion from the system, but roughly $70 billion has already returned, with an estimated $300 billion likely to flow back over the next several weeks as the Treasury General Account gradually normalizes.
Ark Invest believes this improving liquidity backdrop aligns with a clearer dovish tilt from Federal Reserve officials. The note explains that New York Fed President John Williams, Governor Christopher Waller, and San Francisco Fed President Mary Daly have all publicly supported cutting interest rates, driving market-implied probabilities for a near-term cut to about 90%.
Ark Invest noted that the Treasury General Account remains elevated at $892 billion, well above its typical level near $600 billion, suggesting more liquidity is still waiting to be released into markets.
Macroeconomic data has also shifted toward easing pressures. As of the September jobs report, unemployment climbed to 4.44%, payroll data from ADP recorded 13,500 jobs lost over the past week, retail sales softened, and core Producer Price Index readings landed below expectations.
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During the firm’s recent webinar, Ark Invest CEO Cathie Wood said the liquidity strain affecting artificial intelligence and crypto assets is set to unwind.
“In this recent webinar, I discuss why the liquidity squeeze that has hit AI and crypto will reverse in the next few weeks, something the markets seemed to buy, and why AI is not in a bubble,” Wood explained, adding that the 123% growth highlighted in the report relates to Palantir’s U.S. commercial business last quarter.
Ark Invest concluded that the combination of improving liquidity, the scheduled end of quantitative tightening on Dec. 1, and a more supportive monetary policy stance may create conditions for markets to recover some of their recent declines.
• What does Ark Invest identify as the main catalyst for returning liquidity? The reopening of the government and normalization of the Treasury General Account are driving liquidity back into the system.
• How soon does Ark Invest expect liquidity conditions to improve? The firm estimates the next 5–6 weeks could see meaningful liquidity restoration.
• What role does the Federal Reserve play in this outlook? Fed officials signaling support for rate cuts have boosted expectations for monetary easing.
• Why does Ark Invest reference AI and crypto in its analysis? Wood said the liquidity squeeze affecting both sectors should unwind as conditions strengthen.
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