Is the market about to turn? First, let's look at an overlooked signal.

Currently, excess liquidity has dropped to 15.7%, while the Federal Reserve injects $40 billion into the market every month. What does this mean? The funding environment is quietly improving.

The excess liquidity indicator, simply put, is the proportion of "surplus money" in the banking system. The current level of 15.7% is already below the historical average of 20.6%, approaching a critical limit. Past experience shows that whenever liquidity bottoms out and rebounds, risk assets often see a recovery.

Looking back at a 15-year cycle:

2009-2013, after the financial crisis, the Fed launched QE, causing liquidity to surge from 12.7% to over 20%, marking a classic money-printing cycle.

2014-2018, balance sheet reduction began, and liquidity gradually declined. By September 2019, when it dropped to 11.1%, the repo market directly experienced a crisis.

During the COVID-19 pandemic in 2020-2021, unlimited QE caused liquidity to peak at 32.3% in 2021, flooding the market with funds to the point of no exit.

In 2022, a sharp turn occurred. With aggressive rate hikes and balance sheet reduction, excess liquidity plummeted from 32% to 19%, returning near the mean.

Now, we are at the 2025-2026 node. The 15.7% level is not only below the average but also lower than at the end of last year, indicating that the banking system has been pushed to its limit. Since December last year, the Fed's $40 billion monthly repurchase operations are effectively supplementing the liquidity gap.

Is it too early to continue bearish at this point? Possibly not very rational. Historically, the rebound after liquidity bottoms out has never been absent. As for the specific timing and magnitude, it depends on subsequent policy measures and market reactions, but the overall direction is likely already clear.