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Stocks closed the week with significant turbulence as liquidity constraints and rising rates continued to pressure the market. The steepening yield curve and climbing long-term rates are placing additional strain on already fragile conditions. Questions are mounting about whether this is the start of a fundamental shift or a temporary reaction to year-end balance sheet adjustments, with volatility and market sentiment on edge.

Following the Fed’s recent announcement, markets saw dramatic swings: a sharp two-day decline, a retracement rally, and another drop before recovering slightly on Friday. Liquidity has emerged as a growing concern, with levels contracting sharply post-Fed meeting. Key indicators, such as bid-ask spreads in S&P 500 futures and SPY ETFs, widened significantly, signaling tighter market conditions and heightened volatility.

Additionally, the demand for leveraged equities appears to be fading, as evidenced by collapsing funding costs in futures contracts and a sharp decline in repo market activity. With long-term rates like the 10-year nearing potential breakout levels, the pressure on equity markets may intensify. As we look ahead, the possibility of further yield curve steepening looms, creating a challenging environment for investors.

Video Length: 00:10:28

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