The stock market is experiencing a melt-up that defies the usual seasonal patterns and is not solely driven by fiscal flows. The private sector surplus of $380 billion in March 2024, fueled by federal government injections and bank credit creation, has boosted asset markets. However, this alone cannot explain the sustained strength of the stock market.
Factors such as treasury interest income, global fiscal spending, the real estate cycle, and interest on reserve balances at the Federal Reserve are contributing to the stock market surge. The confluence of these factors is creating a financial Venturi Effect, where wealthy recipients invest their income into paper assets, driving an out-of-scale rally in the stock market.
The rise in treasury interest income, the impact of G5 fiscal flows, the peak in the real estate cycle, and interest on reserve balances are all playing a role in the current market dynamics. These factors are leading to a melt-up in the stock market that is not solely explained by fiscal flows, indicating a complex interplay of economic forces at play.
