TL;DR: Quantitative easing (QE) injects liquidity into the market through asset purchases, boosting U.S. equity valuations; quantitative tightening (QT) withdraws funds in the opposite direction, increasing market volatility. Tracking changes in the Federal Reserve’s balance sheet is key to analyzing U.S. equity liquidity trends.

U.S. equity market liquidity, put simply, refers to how much money is circulating in the market. When liquidity is abundant, capital more easily finds a home and stock prices are often pushed higher; when liquidity tightens, market volatility tends to increase, and some assets face pressure from valuation corrections. The institution that controls this liquidity “tap” is the U.S. Federal Reserve,…