You know that sinking feeling when you check your portfolio and the numbers just aren’t adding up?
Right now, investors are facing something that could make that feeling a lot worse. A $150 billion liquidity storm is set to hit markets over the next five trading sessions.
The S&P 500 Index dropped about 3.7 percent in November 2025 as cash started drying up fast. According to a November 23, 2025 analysis from Michael Kramer at Mott Capital Management, Treasury settlements are pulling massive amounts of cash from the system at the worst possible time.
Market liquidity is the ability to buy or sell without moving prices much. Right now, it’s much lower than normal.
Here’s what happened. Heavy U.S. Treasury debt sales soaked up most of the available cash. Then the Federal Reserve’s reverse repo facility, which once held over $2.5 trillion as recently as December 2021, has been almost completely drained. According to Federal Reserve data from November 2025, the overnight reverse repo facility balance now sits at just $7.15 billion.
This forces banks and money market funds to pull money from risk assets like SPDR S&P 500 ETF (SPY), DIA, QQQ, and even Bitcoin just to settle government debts.
Many signs show traders are unwinding risky bets across major markets. Holiday weeks are coming with lighter trading volumes, and there’s no Federal Reserve meeting until mid-December. That means risks could grow fast for all kinds of investments.
I’m going to walk you through exactly what’s happening and what you can do about it.
Key Takeaways
- A $150 billion liquidity event is expected to hit markets over the next five trading sessions as U.S. Treasury bill settlements drain cash from money market funds.
- The Federal Reserve’s reverse repo facility has dropped to just $7.15 billion in November 2025, down from over $2.5 trillion in late 2021, removing a crucial liquidity buffer.
- Thin holiday week trading volumes and no Federal Reserve meeting until mid-December can magnify price swings in risk assets due to low market liquidity.
- Signs of deleveraging are showing as investors sell off positions in S&P 500 Index and Bitcoin to manage shrinking reserve balances amid quantitative tightening that officially ends December 1, 2025.
- Michael Kramer of Mott Capital Management urges reviewing investment strategies now as regulatory bodies monitor stressed ETF periods for broader market impact.
Impending $150 Billion Liquidity Storm in Markets
Markets now face a serious risk from shrinking bank reserves as the reverse repo facility dries up.
Treasury settlements and money market funds may add to volatility in this liquidity storm.
Anticipated liquidity event
Over the next five trading sessions, a $150 billion liquidity event is set to impact major markets.
The Treasury plans to settle a wave of new treasury bills and short-term debt. This drains cash from money market funds and pulls reserves out of banks. According to a November 2025 report from Capital.com Research Team, these settlement cycles can occur 2 to 3 times per week, and when settlements are this large, they push up overnight funding rates.
This shift puts immediate pressure on risk assets like the S&P 500 index and ETFs such as SPY and QQQ. The Federal Reserve’s reverse repo facility will likely see significant depletion as these settlements occur.
Many analysts warn that current market liquidity cannot absorb this shock without added volatility or stress in bank reserves. Michael Kramer from Mott Capital Management notes, “This could force fast deleveraging across portfolios if buyers dry up.”
Impact on markets
With the $150 billion liquidity event set to hit, traders watch market liquidity with growing concern.
The Federal Reserve’s reverse repo facility continues to drain. According to data from the St. Louis Federal Reserve, as of November 2025, the facility holds only $7.15 billion compared to the peak of $2.55 trillion in December 2021. This reduces bank reserves and makes it harder for investors to access cash quickly.
S&P 500 index futures dropped about 3.7% through November 2025 as risk assets struggled under the weight of tightening conditions. As treasury settlements increase and reserve balances fall, major funds like SPDR S&P 500 ETF (SPY), DIA, and QQQ see higher volatility.
Market participants now face thinner trading volumes during the holiday week while waiting on signals from the Fed. The absence of a central bank meeting leaves investors without guidance at a time when deleveraging accelerates.
According to a November 2025 report from the New York Fed, bank reserves have declined to their lowest level since late 2024. Many worry that ongoing quantitative tightening, which officially ends December 1, 2025, may trigger further downturns as institutional traders seek safety in interest-bearing treasuries instead of stocks.
Insufficient market liquidity
Recent U.S. debt issuance has soaked up much of the available cash in markets. This leaves market liquidity at dangerously low levels.
The reverse repo facility’s reserves have fallen dramatically. Investors moved money into new treasury bills and other interest-bearing treasuries. This shrinks the pool of ready buyers for risk assets like stocks.
Large settlements on treasury securities draw further from bank reserves. This happens especially after the federal reserve’s quantitative tightening actions. According to Federal Reserve data from October 2025, bank reserves fell by about $45.7 billion to $2.99 trillion in the week through October 15.
This drain creates stress in areas such as the S&P 500 index and popular ETFs like SPY, DIA, and QQQ. The New York Fed’s Liberty Street Economics blog reported in November 2025 that Treasury market liquidity, while stressed, has remained largely commensurate with increased interest rate volatility. Still, investors face greater market volatility with less support to absorb shocks or sudden moves in prices.
Depletion of reverse repo facility
Liquidity pressures surged after the reverse repo facility ran nearly dry.
The U.S. Federal Reserve’s stash of cash used for short-term lending hit critically low levels. According to Federal Reserve data from early October 2025, the overnight reverse repo facility balance stood at just $8 billion, down from $2.5 trillion at the end of 2022.
This forces large investors to seek funds elsewhere. Treasury settlements now need funding from risk assets and bank reserves rather than this once reliable source.
This shift drained liquidity from markets and created extra strain on investment strategy decisions. Treasury bills offered by the government absorb available money. They pull more cash away from other assets such as equities or ETFs like SPY, DIA, and QQQ.
A November 2025 analysis from BBX noted that as quantitative tightening progressed, the reverse repo facility balance continued its steep decline. This reflects a reduction in excess funds within the system. Institutions no longer have sufficient idle cash to inject into the facility and are instead seeking higher-yield investments.
Evidence of deleveraging process
Traders have started selling risk assets like the S&P 500 and Bitcoin. This shows clear signs of a deleveraging process.
Both markets posted sharp declines in recent sessions. This reflects that investors are cutting exposure to manage tighter market liquidity. According to a November 7, 2025 report, the cryptocurrency market endured a severe liquidity crisis with over $587 million in leveraged positions liquidated in just 24 hours.
The rapid fall in these major indexes coincides with shrinking bank reserves. According to a November 2025 report from Capital.com, Bitcoin prices dropped nearly 20% since reaching a peak on October 6, 2025. The timing aligns precisely with the Reverse Repo Facility dropping below $50 billion in mid-August.
Ongoing quantitative tightening by the Federal Reserve adds pressure. This activity suggests several large players are unwinding positions before the anticipated $150 billion liquidity storm hits markets and depletes more funding through the reverse repo facility.
Potential Exacerbating Factors
Traders often see market volatility increase when trading volumes drop during a holiday week.
A break in Federal Reserve updates can leave investors guessing about liquidity and bank reserves.
Thin holiday week trading volumes
Trading volumes usually drop during the holiday week. Fewer trades mean less liquidity in both stock and bond markets.
This lack of activity can put extra pressure on risk assets like SPDR S&P 500 ETF (SPY), QQQ, and DIA through December’s end. Smaller buy or sell orders can move prices more than usual when market liquidity is low.
The thin trading environment comes right as the treasury general account plans large settlements, which could heighten volatility across U.S. securities, treasuries, and bank reserves. According to November 2025 analysis from the New York Fed, trading desk operations show that holiday periods with reduced volumes can amplify price impacts.
Investors should note something important. With reduced reserve balances at play due to quantitative tightening and declining reverse repo facility use, even small moves may cause sharp swings in indexes such as the S&P 500.
Absence of Federal Reserve meeting
The Federal Reserve will not hold a policy meeting until mid-December.
This leaves markets without clear guidance during this critical period. Risk assets may see more volatility as traders search for direction in the absence of official statements on interest rates or quantitative tightening.
The lack of new signals from the central bank comes just as markets face major liquidity pressures. On October 30, 2025, the Federal Reserve announced that quantitative tightening will officially end on December 1, 2025. But until that mid-December meeting, investors have no new Fed communication to anchor their decisions.
Thin trading volumes over the holiday week can amplify price swings across key ETFs such as SPY, DIA, and QQQ. With no fresh input from the Fed to anchor investor psychology, concerns over market liquidity and reserve balances could spark sharper moves in stocks tied to US treasury bills and other interest-bearing treasuries.
Many portfolio managers must rely on existing data while watching for any signs of deleveraging process or shifts caused by upcoming treasury settlements.
Market Implications
Traders watch the S&P 500 index and other major ETFs for signs of stress as market liquidity dries up.
Treasury settlements can shift risk assets like QQQ in unexpected ways.
SPDR S&P 500 ETF (SPY), DIA, QQQ, and others
Active funds such as SPDR S&P 500 ETF (SPY), DIA, and QQQ face pressure from the coming $150 billion liquidity storm. Market volatility can impact a wide range of risk assets and affect investor sentiment.
Here’s what you need to know about how these major ETFs will respond:
Liquidity shortfalls may cause sharp price swings in SPY, DIA, and QQQ during thin holiday week trading volumes.
Depletion of the Federal Reserve’s reverse repo facility could drain bank reserves, putting added stress on these ETFs and their underlying assets. The deleveraging process may force investors with high exposure to risk assets, including those tracking the S&P 500 Index, to sell positions in bulk.
According to data from Wikipedia as of September 2025, the S&P 500 has an aggregate market cap of more than $57.401 trillion. The ten largest companies account for approximately 38% of this market capitalization. That means when liquidity tightens, selling pressure concentrates in the biggest names, which can amplify moves in funds like SPY.
Exchange-traded funds like SPY, DIA, and QQQ often trade heavy volumes during periods of market instability. According to S&P Global data, SPY is the most liquid ETF based on average daily volume, though it carries a higher annual expense ratio of 0.09% compared to alternatives like VOO and IVV at 0.03%.
Treasury settlements coincide with low reserve balances due to quantitative tightening. This reduces available liquidity for major index funds. Any US stock market downturn can quickly spread across baskets held by retail and institutional participants using products such as SPY or QQQ.
Michael Kramer of Mott Capital Management expects broad asset class effects. These will ripple through markets tied to interest-bearing Treasuries and treasury bills. Regulatory bodies like the U.S. Securities and Exchange Commission (SEC) monitor stressed periods in popular ETFs since high outflows may trigger further market swings.
Investors should review their investment strategy for holdings in vehicles like QQQ or DIA. According to a November 2025 report from Capital.com, Bitcoin faced notable difficulties after the Reverse Repo Facility dropped below $50 billion, with prices dropping nearly 20% since the October 6 peak. This same liquidity tightening now threatens equity ETFs.
Financial advisers remain alert to how increased market activity in these funds might impact client portfolios during a liquidity event.
Author’s Expertise
Michael Kramer, an investment adviser and founder of Mott Capital Management, brings decades of experience on risk assets and the US stock market downturn.
His insights can help you prepare for what’s coming next.
Michael Kramer, founder of Mott Capital Management
Michael Kramer founded Mott Capital Management and brings 30 years of experience in macro themes and long-term investment strategy.
He leads “Reading the Markets,” offering insights on US stock market downturns, risk assets, market liquidity, reserve balances, and treasury settlements. According to his November 23, 2025 analysis published on Seeking Alpha, Kramer is a long-only investor who focuses on macro themes and studies trends and options activities to identify and assess entry and exit points for investments.
Kramer specializes in finance topics like Federal Reserve policy, quantitative tightening, reverse repo facility changes, debt ceiling pressures, and shifts in bank reserves. His expertise helps investors understand volatility in indexes such as the S&P 500 Index while considering risks from interest-bearing treasuries or the depletion of cash held at major financial institutions.
30 years of experience
Michael Kramer brings 30 years of experience in trading, analysis, and portfolio management.
As the founder of Mott Capital Management, he has worked through market volatility, liquidity storms, quantitative tightening cycles, debt ceiling events, and shifts in bank reserves. According to his Seeking Alpha profile, he is a former buy-side trader, analyst, and portfolio manager with three decades of experience tracking market technicals, fundamentals, and options.
He also leads Reading the Markets. He tracks how events like treasury settlements impact risk assets such as SPDR S&P 500 ETF (SPY), DIA, QQQ, and others.
He uses real-time data from sources like the federal reserve (Fed). He monitors changes to key tools such as the reverse repo facility to spot early signs of deleveraging processes. Kramer’s background provides a solid foundation for understanding trends in US stock market downturns or upswings tied to reserve balances or interest-bearing treasuries.
Leader of “Reading the Markets”
A track record built over three decades supports his role as the leader of “Reading the Markets.”
He founded this investing group to help traders and investors understand critical macro trends. Every day, he provides updates through written reports and videos. According to his November 2025 description on Seeking Alpha, Reading The Markets delivers daily, institutional-style updates with written commentary, videos, transcripts, and glossaries.
These cover shifts in market liquidity, changes in reserve balances, treasury settlements, and signals from quantitative tightening by the Federal Reserve. His daily content highlights risks like a liquidity storm or signs of deleveraging in risk assets such as SPDR S&P 500 ETF (SPY), DIA, and QQQ.
“Reading the Markets” also explores how events such as reverse repo facility depletion or bank reserves affect investment strategy. Subscribers use these insights to spot moves linked to market volatility or major US stock market downturns before they unfold.
Educational Purpose and Disclaimers
You should use this information for your own learning before making any investment strategy.
The Securities Investor Protection Corporation does not guarantee profits or protect against market volatility in risk assets like treasury bills and the S&P 500 index.
Information provided for educational purposes
This article gives information for educational purposes only.
Michael Kramer, founder of Mott Capital Management and leader of “Reading the Markets,” has 30 years of experience studying market liquidity, reverse repo facility trends, and U.S. stock market downturns. He holds no positions in SPDR S&P 500 ETF (SPY), DIA, or QQQ mentioned here.
No content should be seen as personalized investment advice or a recommendation to buy or sell risk assets like treasury bills and interest-bearing treasuries. Investing in the financial markets involves risks such as loss of principal or increased market volatility during events like quantitative tightening or depletion of reserve balances at the Federal Reserve.
Always review your own investment strategy carefully before taking any action based on this information.
No positions held in mentioned companies
Michael Kramer, founder of Mott Capital Management, holds no positions in SPDR S&P 500 ETF (SPY), DIA, QQQ, or any other companies mentioned.
He provides an unbiased perspective by not investing in risk assets discussed throughout the analysis. His approach helps maintain transparency for readers looking to better understand market liquidity issues like the depletion of the reverse repo facility and treasury bill settlements without concerns about potential conflicts of interest.
Disclaimers about investment risks
The lack of positions in any mentioned companies connects to the important fact that all content is for educational purposes only.
Market volatility, especially during events like a liquidity storm or treasury settlements, can cause sharp price swings in risk assets such as SPY, DIA, and QQQ. Past results do not assure future returns.
Investment strategies discussed may not fit every investor. Each person should conduct their own research before making decisions about US stock market downturns or shifts in reserve balances.
Seek guidance from a qualified financial advisor who understands your goals and risk tolerance instead of relying solely on presented information. The Securities Investor Protection Corporation (SIPC) does not protect against losses due to market changes or credit events affecting bank reserves or treasury bills.
Conclusion
Markets face a $150 billion liquidity storm, so smart investment strategies matter now more than ever.
You can use the tips from this article to act quickly. Monitor the reverse repo facility, which has dropped to just $7.15 billion in November 2025. Watch risk assets like SPDR S&P 500 ETF (SPY) or QQQ for sudden moves. These steps help you manage market liquidity issues and stay ready for sudden changes.
Bank reserves fell to $2.99 trillion in October 2025 according to Federal Reserve data. Treasury settlements will continue to drain cash from the system. Quantitative tightening officially ends December 1, 2025, but the effects will linger for weeks.
For deeper insight into macro trends affecting your portfolio, check out resources by Michael Kramer at Mott Capital Management or “Reading the Markets.” Adapting early means you do not just react to volatility but turn challenges into opportunities for financial growth.
