Liquidity Cycle

The liquidity cycle is the cycle of money itself. Rate cuts, balance-sheet expansion, credit growth and fiscal injections make money cheap and abundant, and it chases assets, lifting valuations; hikes and balance-sheet runoff make money expensive and scarce, forcing valuations to compress. Equities, bonds, property, commodities and even crypto all breathe along this curve.

It correlates with the economic cycle but is not synchronized with it — liquidity usually leads. Central banks typically start easing before the economy bottoms, which is why markets so often turn up when fundamentals look worst. A “liquidity-driven rally” is precisely the phase where multiples recover before earnings do.

Practical handles for tracking it include the direction of policy rates, central-bank balance-sheet growth, credit-spread direction, money-supply growth and financing data. Each single gauge is noisy; directional agreement across them is the signal.

CycleMaster feeds liquidity-related series into its macro regime classification and cross-checks it against each symbol’s cycle state: with a liquidity tailwind, Uptrend positions carry higher confidence; with a headwind, the system flags the weakening backdrop even while individual names are still rising. The “water level” stops being a vague intuition and becomes a readable label.