US wrap: Liquidity has a memory and it just came back online

Liquidity has a memory

The first real trading days of the new year are doing what they almost always do when liquidity returns from holiday hibernation. They reward conviction, punish hesitation, and quietly remind anyone still clutching the weekend’s geopolitical headlines that markets rarely wait for perfect clarity. Venezuela never got out of the gate as a risk event. It flickered, failed to ignite, and was promptly priced out as allocation money reasserted control of the tape.

US equities pushed to fresh highs with the kind of body language that signals confidence rather than relief. This was not a squeeze driven by fear of missing out. It was a resumption of a multi-year trend. The S&P 500 cleared another closing high, the Nasdaq leaned further into its growth bias, and small caps finally remembered that liquidity works both ways. When the Russell starts outperforming alongside tech, that is not nervous positioning. That is breadth expanding.

This kind of rally only shows up when traders start to smell better growth before it shows up in the data. It is not relief, and it is not a rate cut inspired. It is the tape quietly pricing a re-acceleration. Cyclicals lift, small caps find their footing, semis lead rather than lag, and credit refuses to widen. That combination does not happen when the market is bracing for a slowdown. It happens when desks believe the next set of prints will justify taking risk rather than fading it.

What makes this move more interesting is what did not happen. A softer US Services PMI should have reignited rate cut euphoria. Instead, rate cut odds actually slipped lower. That is not a contradiction. It is a tell. When equities are levitating under their own power, the market quietly marks down the need for a Fed rescue. Strength itself becomes the hawkish input. The so called Fed put fades into the background when risk assets are already behaving as if policy is accommodative enough.

Under the hood, the plumbing matters. Money market balances are still sitting on a mountain of dry powder. That cash does not evaporate. It waits for permission. January has a habit of granting it. With volumes running well above recent averages, ETFs dominating the tape, and order book liquidity snapping back sharply, the market is no longer trading on fumes. It is trading with depth. That matters for durability.

The AI narrative remains the structural spine of this cycle. The updates from the CES trade show in Las Vegas were not about hype. They were about visibility. Semiconductor names are moving higher while parts of mega-cap tech lag, telling you exactly where capital is discriminating. Infrastructure beats applications. Shovels outperform stories. It’s a reminder that this story remains a capital-expenditure-driven cycle, not a consumer-gadget story.

At the same time, leadership is broadening. The convergence of industrials, healthcare, and tech is not late-stage exhaustion. It is rotation without liquidation. The fact that the most prominent names are lagging while the broader index advances is healthy, even if it makes index concentration risk harder to ignore. The S&P outside the usual suspects is quietly doing the heavy lifting.

Volatility, however, is being rented, not owned. The surface is calm because traders are selling it every morning through short-dated options. Zero-day expiries continue to iron out intraday swings, but that calm is conditional. January is piling on catalysts. Labour data, earnings season, tariff rulings, and fiscal noise are all lining up. Low bond volatility has been a critical pillar for rate-sensitive equities. If rates rise quickly and meaningfully, that pillar is tested immediately.

Correlation tells the same story. As implied correlation falls and single-stock volatility outpaces index volatility, dispersion rises. That supports rotation and relative-value trades, but it also carries a familiar late-cycle scent. Investors are paying up for upside while hedging the index. That is confidence with a seatbelt on. This setup makes me anxious when the calendar flips to February.

Outside the US, it's definitely worth taking a look . Chinese equities are grinding higher session after session, the longest winning streak in decades, while bond yields there are stirring as well. That combination matters. It speaks to domestic confidence rebuilding rather than foreign hot money chasing headlines. Metals are reading the same script. Copper breaking records, nickel ripping violently higher, and precious metals accelerating together are not random. It is a mix of supply anxiety, tariff speculation, and most of all Asia-led industrial participation. When prices move hardest during Asian hours and then extend in Europe and the US, you know where marginal demand is coming from.

Gold and silver are trading like instruments that anticipate policy and balance-sheet risk before it shows up in the headlines. They are not flinching at higher yields or a firmer dollar, which tells you this move is about protection and preservation rather than tactical rate bets. Digital assets, on the other hand, have reverted to their well-worn pattern of sharp momentum bursts followed by sudden air pockets. That contrast matters. One market is quietly being accumulated with intent. The other is being actively traded for velocity.

Energy remains the release valve. Crude tried to rally, failed, and slid back into range. For now, oil is behaving like a macro shock absorber that keeps inflation fears muted and gives equities room to breathe.

Rates nudged higher, the dollar clawed back some ground, and the curve quietly signalled that the economy is not rolling over. The belly outperforming while the long end creeps higher is consistent with growth holding up better than feared. Fixed income remains attractive on its own merits, but it is not yet sending a warning flare to equities.

The elephant in the room remains concentration. A handful of stocks still carry an outsized share of market cap and earnings power. That has been a feature, not a bug, of the last few years. Encouragingly, the usual excesses that mark terminal blow-offs are not fully present. Speculation is elevated but not euphoric. Short interest is high. IPO supply has been restrained. Balance-sheet leverage is rising, but not extreme. This is not 2000 or 2021.

Still, dependence cuts both ways. As concentration rises, so does idiosyncratic risk. In 2026, the micro will matter as much as the macro. Earnings execution, capex discipline, and narrative credibility at the top end of the index will determine whether this melt-up becomes a grind higher or a sharper reckoning.

For now, above the psychological threshold of 6900, the path of least resistance remains higher. Liquidity is back. Volatility is subdued. Breadth is improving. Just do not mistake a smooth surface for solid ground. The market is confident, not complacent. But remember that overconfidence, like liquidity, has memory.