Updated analysis of the Net Liquidity formula — its R² of 0.91 with SPX, component breakdown for 2026, what changed with ONRRP depletion, and a practical positioning playbook.
Net Liquidity = Federal Reserve Total Assets (WALCL) - Treasury General Account (TGA) - Overnight Reverse Repo (ONRRP). This formula has maintained an R² of approximately 0.91 with the S&P 500 since 2020 — explaining 91% of the variance in stock prices. For Bitcoin, the R² is approximately 0.82.
It captures the true dollar liquidity available to the private sector. Fed assets represent total reserves injected. TGA is reserves removed by the Treasury. ONRRP is reserves parked at the Fed by money market funds. Subtracting gives net reserves actually circulating — the money that reaches asset markets.
No other single formula matches this explanatory power. DollarLiquidity.com was built around this framework because GDP, earnings, and P/E ratios all explain far less variance.
Fed Balance Sheet (WALCL): Around $6.7 trillion, down from $8.96T peak. QT slowed to $25 billion per month. The Fed may end QT entirely in 2026 if reserve conditions tighten.
TGA: Fluctuating $600-900 billion based on fiscal calendar. Now the primary swing variable in the formula, replacing ONRRP. TGA creates liquidity "pulses" around tax deadlines, debt ceiling episodes, and refunding events.
ONRRP: Near zero ($50-150 billion), down from $2.55T peak. The formula simplifies to approximately: Net Liquidity ≈ Fed Assets - TGA. The system is more sensitive to TGA swings and Fed changes than during the ONRRP-buffered 2023-2024 period.
March 2020: Net liquidity surged $3.5T → $5.5T in 8 weeks as the Fed injected $3T and TGA drew down. SPX rallied 70%+. Signal led the bottom by ~5 trading days.
2022 bear market: Net liquidity contracted $6.2T → $5.5T as QT, TGA rebuild, and elevated ONRRP drained simultaneously. SPX -25%, BTC -77%. Triple tightening captured perfectly.
2023-2024 rally: Net liquidity expanded $5.5T → $6.1T despite ongoing QT, because ONRRP drainage ($2T+) more than offset. SPX 3,577 → 5,800+. The formula predicted the rally most analysts missed.
2025-2026: Stabilized around $5.8-6.2T. Neutral-to-modestly-positive environment. SPX grinds higher consistently.
From 2022-2024, ONRRP was the primary shock absorber — releasing $2+ trillion to offset QT and Treasury issuance. That buffer is now gone.
Every dollar of QT now directly reduces net liquidity with no offset. Every TGA rebuild drains bank reserves without ONRRP cash filling the gap. TGA swings become more impactful. Score transitions on DollarLiquidity.com may be faster and more consequential.
Step 1: Check net liquidity trend weekly on DollarLiquidity.com. Rising net liquidity supports risk-on; falling suggests caution.
Step 2: Identify the driver. TGA drawdown (temporary fiscal event) vs. QT ending (structural shift) have different persistence.
Step 3: Cross-reference the composite score. Net liquidity rising + VIX falling + HY spreads tight = maximum-confidence Loose.
Step 4: Size positions accordingly. Confirmed Loose + rising net liquidity = full exposure. Neutral + flat = maintain. Tight + declining = reduce and wait for the formula to confirm a turn.
No. R-squared measures how much of the variation two series share over a sample that has already happened; it says nothing about forecasting the next move. A contemporaneous fit that strong is genuinely informative about what drives risk appetite, and it is not a forecast. Fitting the same relationship out of sample, at a horizon you could actually trade, produces far weaker results.
The arithmetic is unchanged but one term has stopped doing work. Subtracting a balance that sits near zero adds nothing, so net liquidity now moves almost entirely with the Fed's assets and the Treasury's cash account. In practice that makes the series more sensitive to fiscal timing than it was in 2023, when the ON RRP absorbed much of the swing.
Only if you can say what question the addition answers. Standing repo usage, the discount window and foreign repo pool all move reserves and none of them is in the three-term version. Adding terms improves the fit and makes the series harder to reason about, which is a real trade-off; this site keeps the published formula simple and handles the rest through separate funding-stress indicators.
Deep Dive
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A deep dive into the Fed's ON RRP facility — how it works, why it surged to $2.5 trillion, how its drainage to near-zero fueled the rally, and what its depletion means for 2026 markets.
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