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This week, we saw the S&P 500 rally sharply, but on declining volume—a possible sign of an absence of sellers rather than strong performance. Stabilizing interest rates and a dip in the dollar index below key support levels highlight shifting dynamics.

With a light economic calendar this week, all eyes turn to next week’s action-packed schedule, starting with the Federal Reserve meeting on Wednesday. Markets expect the Fed to hold rates steady, with swap pricing signaling potential rate cuts by mid-year. Key economic reports, including the Employment Cost Index and PCE inflation data, will provide critical insights into inflation and wage growth.

Liquidity trends in the repo market and equity financing costs suggest reduced demand for leverage, potentially signaling strain beneath the surface of recent market gains. Meanwhile, reserve balances and TGA activity may impact liquidity and equity market movements as February progresses.

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