Is Stock Market Liquidity Getting Too Low?

Although recession fears may bring a temporary stock market correction, it would also boost financial market liquidity bringing the support needed to extend the contemporary bull market.

The stock market runs on liquidity – actually on “excess” liquidity. Historically, the stock market does best when the annual growth of the money supply exceeds nominal GDP growth. Much of the available money supply is used to finance economic activities and drive nominal GDP growth. But, when the pace of the money supply is greater than needed by economic activities, the excess monetary expansion typically finds its way to the stock market helping to boost equity prices.